In the boardrooms and C-suites of many western insurance companies there is a received imperative that they need to be in Asia, and in more recent years they feel they need to be in China. They are seduced by the “high growth market” outlook fuelled by high year on year GDP growth, and the “massive emerging middle class” seen as the opportunity that is simply too good to miss. A presence in country or region and a strategy will put a couple of hundred basis points on the stock price – surely?
But there is a bit more to it than that. It’s misleading to assume that high GDP growth will automatically mean high growth in sales of insurance. The income disparity which exists in many emerging economies means that the super rich don’t buy insurance – they own the insurance companies or they don’t have confidence that a schedule of their assets or valuables would remain confidential, and the poor are still acquiring the things to which they aspire, such as a permanent secure home, transport for the family such as a small motor cycle, education for their children, a TV and a refrigerator. Insurance policy is therefore probably not a priority purchase.
The “emerging middle class” are the target market, but where are they? Well they are there in their millions, but very often the distribution networks to reach them are not yet in place so there is no adequate means of reaching them. Is there a solution to this? Yes, but there is a point that is often missed. Insurance has one simple proposition to sell – that promise that if there is a claim covered by the policy, it will be paid or the claimant will be made good. But if you are trying to build a business on a promise, your customer has to have the trust that it will be kept. In Asia, if that is to be successful, that means kept with the right mindset. Not just an ability to pay, but a willingness to pay, and pay promptly.
Reaching the emerging class has proved much tougher than many companies coming into the region have thought. Experience has shown that it tends to be locally formed and incorporated insurers, often with local ownership and locally managed that can successfully forge these links of trust with the emerging middle calls, or local business owners thought to be the future of these high growth economies.
Supporting economic growth
Peak Re have been working since day one to build partnerships with insurers in countries such as Fiji, Papua New Guinea, Cambodia, Bangladesh, Pakistan, Sri Lanka, Vietnam – all of whom have a unique relationship with and proposition for their customers. If we can help them to grow their business, we help them to grow their economies, and if they grow, we can grow with them. For instance, trade credit insurance plays an important role in facilitating international trade for emerging countries. It protects businesses from losses incurred due to credit risk such as defaults, insolvency and bankruptcy.
In Vietnam, the primary insurers have outsourced to handle this line of business to the reinsurers, both in terms of risks taking and underwriting. In view of this opportunity, Peak Re has partnered with credit risk solutions specialists and rolled out a Trade Credit Partnership Scheme, the first of this kind, to facilitate the development of trade credit insurance in Vietnam. This will help our clients to become more resilient to credit risks, play a larger role in international trade, and hence support sustainable economic development.
Providing more relevant protection
But sometimes the market needs a helping hand to reach customers or to show the value insurance can bring. Here is an example. The Chinese government launched an initiative to reduce the impact caused by catastrophic events on local people who might not be reached by the conventional market -the Farmers’ Residential House Insurance Programme. It aims to provide property damage (Nat Cat and man-made) and accident insurance cover to 50 million Chinese farmers via domestic insurers.
A 5.1-magnitude earthquake took place on 30 October 2015 affecting over 12,000 houses in Yunnan province. Through this programme, those affected had access to funding to rebuild their homes and get their communities back on their feet. Peak Re, as one of the reinsurers of that programme, paid the claim within two days of it being reported and ensured the timely supply of money to those in need.
In Sri Lanka, the Disaster Management Ministry and the Finance Ministry have established a new venture within the National Insurance Trust Fund. This is a Natural Disaster Insurance Scheme in which the government has allocated funds to pay premium to help those with no access to insurance in case of a natural disaster. Thanks to reinsurance protection from Peak Re and other reinsurers, the Sri Lankan government now has greater financial certainty and stability and can therefore extend the coverage to a wider population going forward. And it works. It will respond to the floods which hit Sri Lanka only last month.
In addition, local governments and the insurance industry are also collaborating to promote solutions which include micro-insurance and other insurance schemes, which will help sustain small communities. A good example is a micro insurance Credit Life Programme by the Pakistani Government, which aims to provide health care and income protection to people earning less than USD 2.00 per day. The protection will cover all members of the insured family with the premium to be funded by the federal and provincial governments. Following the launch, 1.2 million families are estimated to benefit in the first phase, whereas another 3.2 million families are to follow in the second phase.
Fundamental to Peak Re’s principles is that we understand the region in which we are based, and the dynamics that apply to those countries in which we trade. Knowing the unique selling propositions of our clients, and understanding that our clients understand the needs of their clients in emerging Asia means that we are better placed to assist them grow their business, and in turn assist the growth of their economies. How does this promote growth? It promotes growth by increasing efficiency through the release of capital to be invested in ventures that can promote jobs, support families, foster education, and create a virtuous circle.
