"We remain very positive about emerging Asia"

“We remain very positive about emerging Asia” | Insurance Business Asia

Insurance News

“We remain very positive about emerging Asia”

Generali exec discusses the insurance issues facing the region

Insurance News

By
Kenneth Araullo and Ryan Smith

Global insurer Generali has made Asia a priority for its continued growth and diversification. Robert Leonardi, chief Asia officer at Generali International, recently chatted with Insurance Business about the company’s Asia presence, its partnership with the United Nations Development Programme, the insurance impacts of climate change, and more.

IB: From Generali Asia’s standpoint, what are the biggest industry takeaways from 2023’s natural catastrophes, as well as insurance coverage in the region?

Leonardi: First, regarding natural catastrophes in Asia, we need to take stock of the global acceleration of climate change.

Besides being the hottest year on record, 2023 has been the fourth consecutive year with insured natural catastrophe losses exceeding US$100 billion (an estimated US$123 billion in 2023, as per the annual Natural Catastrophe and Climate Report by Gallagher Re).

Less than 10 years ago, a normal year for insured natural catastrophe losses would have been in the US$30-33 billion range. Asia’s economic growth and increasing demand for insurance are factors behind the rise in insured losses, but the deeper issue is mounting climate-related risks.

For example, last year State Farm, the United States’ largest home insurer, stopped offering home and business insurance in California, a decision that was also taken by Allstate and The Hartford soon after. In a massive, once-profitable market, insurers simply weren’t able to accept the risks any more.

In Asia’s emerging property and casualty (P&C) insurance markets, such as Indonesia, Vietnam, and the Philippines, the demand for property coverage is growing slower compared to life and health. Whereas in Hong Kong, where we are an active insurer of the local SME community, we see stronger demand for property insurance, though few customers are willing to purchase extra coverage such as business interruption.

In 2023, natural catastrophes caused fewer casualties in Asia than the rest of the world. The worst in this region was the earthquake in Afghanistan, which saw 1,500 casualties, whilst the most devastating globally was the earthquake in Turkey and Syria at around 55,000 casualties.

My hope is that the increase in inter-governmental cooperation around early detection and early warning systems, which accelerated after the 2004 Indian Ocean tsunami – that resulted in 228,000 casualties – continues to play a part in this progress.

IB: How will the UNDP partnership aim to address the worsening climate risks in the region for SMEs? What kind of development will it see in 2024?

Recognising this, we have focused our actions on three key pillars to support SMEs in the Asia region: awareness, adaptation, and resilience.

Firstly, we are running a series of initiatives, including the publication of a joint research on the status of micro, small and medium enterprises (MSMEs) in ASEAN and their engagement with local institutions, to raise awareness about the impacts of climate change and the risks these businesses are currently facing. Additionally, we are running a series of information campaigns and events to spread awareness around these topics and to encourage financial literacy among SMEs.

Secondly, we are supporting the development of innovative insurance solutions as part of our Insurance Innovation Challenge Fund dedicated to helping SMEs become more adaptable.

Thirdly, we are producing an SME loss-prevention framework, a digital tool hosted via an online platform (that will also be developed as a mobile app) offering advice for businesses on how to protect their activity in the face of climate challenges and other risks. Together, these initiatives will enable SMEs to be more resilient against climate risks and define their journey towards more sustainable business models.

2024 will be a key year for our partnership as all the above-mentioned initiatives will be either delivered or further developed. In this journey, SME associations and public institutions [are] providing their support to our desire to advance resilience and sustainability for SMEs.

IB: With January renewals now over and 2023’s disasters confirmed to impact pricing, how can businesses in the region best tackle climate risk amid rising premiums and underinsurance? What can Generali and other insurers do to help these businesses?

Leonardi: In Asia, the January 2024 catastrophe reinsurance programme renewals were largely renewed at the expiring terms – after having seen premium rate increases in 2021, 2022 and 2023. For the global reinsurers, Asia is increasingly seen as an attractive geographic diversification considering the growing natural catastrophe losses recorded in North America and Europe.

Across developing Asia, SMEs remain largely uninsured or underinsured. Based on feedback from our clients, they mostly trade on the basis of trust and, in the case of unexpected events, will double down to ensure they deliver for their customers and maintain their reputation.

With more trade happening on online platforms, SMEs want to maintain their ratings or online reputation; the difficulty is this can become a low-margin environment if they need to resend goods that are claimed as undelivered or not in optimal condition.

Many SMEs can afford insurance but lack the confidence that they will be correctly indemnified. Insurers need to accept that business owners might want to continue self-insuring for smaller risks and focus on coverage for larger-scale issues. This could pave the way for more affordable products with higher deductibles, whilst maintaining a sufficiently high limit and breadth of coverage. Generali and other insurers should focus on being at the customer touch point where this conversation can happen in a meaningful way.

Many business owners will first take out a life and health policy, at which point our agents can enquire about their P&C needs. In China, there is strong cooperation between our life and P&C companies, which is well-received by our customers. Business owners’ needs tend to be country-specific; for example, in China, low-risk office policies are often purchased alongside insurance for a riskier workshop or warehouse, and with an extension to cover employer liability, a growing concern among business owners.

Other business owners may start buying insurance when they transition from trading domestically to doing so across borders. For example, if they turn to their bank to obtain a letter of credit, the bank may suggest they insure the goods shipped. This means that bancassurance partnerships are an interesting channel for future growth.

Finally, insurers need to do more to bring loss prevention service to SMEs. These services are already a priority for larger corporates with full-time risk managers. In Europe, Generali has been standardising access via a digital app to help our agents map and diagnose the risks facing SMEs, and highlight where insurance can play a role in risk mitigation. We believe this is needed to further reduce the impact of natural catastrophes and will be increasingly valuable in the future.

IB: What is Generali Asia’s outlook for the region in 2024, not just from a climate perspective but on the insurance industry as a whole?

Leonardi: We remain very positive about emerging Asia. Generali is an established market leader in Europe and Asia is a priority for our future growth and diversification. Over recent years, we have been a key driver of growth for the group in terms of new customers, new business and net inflows, and 2024 looks poised to continue this trend.

In China, in a context of poor performance in the real estate and equity markets, there is strong customer demand for safe investment and healthcare products, and we are growing our market share. In January, we announced an agreement with our joint-venture partner towards taking full ownership of our P&C company in China that has developed valuable expertise in insuring renewable power generation and electric vehicles.

India, on the other hand, the economy is in a remarkable growth cycle, benefitting from fundamental reforms and investments in digitisation. In 2022, we were the first international insurer to achieve controlling positions in our insurance joint-ventures, and we are strongly committed to the country.

We are also active in Malaysia, Thailand, Vietnam, Indonesia and the Philippines – all of which are building more open and resilient economies. Although they are seeing slowing investments from China, there are growing investments from Western countries which are diversifying their manufacturing and supply chains.

In the short term, the insurance industry in emerging Asia is navigating a lot of regulatory changes. In most countries, regulators are working hard to deal with mis-selling – notably for savings products – and improve customer protection. In many markets, rigid tariffs for property and motor insurance and simple solvency frameworks are being replaced by market-based pricing, risk-based solvency frameworks and IFRS accounting. We welcome these changes which are closer to our current practices as a responsible insurer. That said, there is still a lot of work to do to effectively navigate markets going through this degree of change.

In the medium term, climate change will be a massive challenge for Asia. While there are bright spots such as the rapid development of renewable energy sources, difficult questions remain around the phasing out of coal power generation in a context of growing energy needs and around the growing enthusiasm for air travel.

Among emerging economies worldwide, most Asian countries have reached a level of stable government, allowing them to look after the most vulnerable populations, as well as work effectively on adaptation and the green transition, co-financing initiatives with the insurance industry and other private sector collaborations. We are committed to playing an active role in this massive change.

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