RGA Exec: Asian Life Insurers Face Technology, Investment Challenges
November 13, 2015 by Ernesto Calucag, Hong Kong news editor: Ernesto.Calucag@ambest.com
MANILA, Philippines – Innovation will be a significant game changer in the insurance industry that will define the line between market losers and winners, according to Gary Comerford, chief marketing officer at Reinsurance Group of America, Inc.
Comerford said this new market dynamic will be more apparent in Asia given the changing demographics and evolving customer behavior largely dictated by increasing use of digital interface.
Market competition will also be a significant factor as regional and global players compete with local insurers to take a share in the region’s growing life insurance market.
“As I look around the world I see Asia and the Middle East leading in growth. The more mature markets of North America and Europe will be steady but will not supply the growth levels that were once normal,” Comerford told Best’s News Service. “But life insurers everywhere are being challenged to offer products and delivery systems that appeal to a new generation of consumers. Technology has allowed comparison and ease of purchase, so the value added offered by each life company needs to be clearly evident to the consumer,” he added.
The RGA executive noted pretty soon, the market will see the entry of nontraditional players who are more technologically equipped to serve the customers better, especially in the area of distribution.
“I believe that real change is about to occur, primarily driven by new methods of distribution. This change will happen either driven by life companies or by intermediaries who will disrupt the market,” he said.
This is already happening in China, where Internet companies have largely impacted the traditional business strategies of domestic insurers. In a report, consultancy firm Celent said insurance companies have started to consider themselves as part of a larger ecosystem — and are using “Internet thinking” to bring innovation to their products and services.
Celent analyst Wenli Yuan earlier told Best’s News Service that in this new market dynamics, Internet companies or new market entrants may gain an advantage over traditional insurance companies (Best’s News Service, July 30, 2015). “Internet business has many special features compared to traditional business, such as free services, emphasis on user experience, ease of use, openness, sharing, interactive communication, participation. Internet companies have “Internet thinking” in their genes, and when they enter financial services, they disrupt the industry,” Yuan said.
Life insurers in Asia also face the challenge of balancing their assets and liability given the low-interest rate environment in the region. This current low-yield environment has driven insurers to look for alternative assets for better return — an ongoing process which is defined by a mix of factors and market conditions.
Charles Scully, managing director and chief investments officer for Asia at MetLife, said that from a wider business perspective, the persistent low-interest rate environment has limited the variety of products offered by insurers due to the constraints of asset liability matching.
“Low interest rates can make it challenging to achieve targeted returns for existing customers. In many markets, the yields at which we reinvest are substantially less than the yields of our assets which are rolling off. This results in lower new money yields which impacts net investment income,” he told Best’s News Service. “This also hinders the development of new products to support evolving customer needs. Persistently low interest rates can distort capital market pricing and impede the differentiation of risk among various asset classes,” Scully added.
In a Best’s Special Report titled, “Changing Asset Management Trends — The Quest For Better Yields,” it noted that life companies in Japan and China, armed with increased investable assets, are looking beyond their conventional asset investment strategies in a bid for better returns and profits for sustainable growth. “In developing financial markets like China, insurers trend to be more prone to uncertain risk prospects on new investment channels and volatile domestic stock markets. By contrast, for insurers in Japan, they seem to be better-developed with strategic shifts in asset allocation; however, they have to be mindful of large liability denominated in local currency,” the report noted.
With these evolving trends, A.M. Best noted strong enterprise risk management is critical to ensure a successful outcome of a shifting strategy over time. The levels of liquidity and volatility in the capital markets are important factors to be evaluated, but on top of this, companies should consider as to what extent can their risk appetite withstand or have control over these financial events.
Digital revolution and the changing investment environment are just some of the many topics in this year’s Pacific Insurance Conference to be held in Manila, Philippines from Nov. 29 to Dec. 2.
With the theme “Delivering Customer Value in an Era of Disruptive Innovation”, the conference intends to come up with an updated roadmap which can help insurers build successful business operations in the rapidly growing and diverse insurance markets in the Asia Pacific region.
“That the change that is upon us is real and that there will be winners and losers. Sticking to your knitting at this point in time would be very risky,” said Comerford, who also the chairman and CEO of PIC executive committee.
Metlife’s Scully, meanwhile, will share his insights on how best to manage the investment challenge during the conference.
