Published Date: 17 April 2013

Opening Keynote Address by Mr Ng Nam Sin, Assistant Managing Director, Monetary Authority of Singapore at the Asia Insurance and Reinsurance Conference on 17 April 2013

Mr Pravej Ongartsittigul, Secretary-General, Thailand Office of Insurance Commission

1   Good morning. Thank you for inviting me to join you at this inaugural Asia Insurance and Reinsurance Conference.

2   The global financial crisis happened 5 years ago but its impact continues to be felt, and the world, especially the financial sector, has to adjust to a very different landscape. Unfortunately, the insurance industry is not spared. It too has to adjust to a more challenging and stringent environment. Insurers’ balance sheets are under pressure from several quarters. Even as the industry reels from the record catastrophe losses of 2011, underwriting results continue to be challenged by a combination of sluggish global growth, softening rates and rising claims. Investment returns are also weaker due to the low interest-rate environment. At the same time, insurers have to meet more rigorous regulatory and capital requirements as the world shifts toward risk-based regimes like Solvency II.

3   Given these, insurers are looking to other markets such as Asia for growth. Markets in Asia comprise a grouping of economies of different stages of development and size. Asia is not a country. It is not homogeneous. In order to achieve sustainable and profitable growth, insurers need to understand these markets well. I would like to share some thoughts on the risks and opportunities in the region, and the implications for insurers.

Opportunities Underpinned by Strong Fundamentals

4   Firstly, let me touch on opportunities. Most of us are familiar with the Asian growth story. Of late, Asia’s attractiveness has been accentuated by subdued prospects in the developed economies. According to the IMF, emerging Asia will grow by about 7% per annum over the next five years, nearly three times faster than the 2.5% forecast for advanced economies. While growing domestic demand has fuelled growth, a few structural trends suggest that demand will continue to rise in the longer term:

  • The first trend is demographic change. Asia’s population is growing rapidly. Over the next 5 years, the UN expects Asia’s population to increase by a further 5%, or 200 million more people, compared to 1.6% in the more developed economies. This population is also ageing rapidly. The number of people over 65 in the region is estimated to increase threefold to almost 1.3 billion by 2050. This will increase demand for healthcare and retirement planning services, and products.
  • The second trend is rising affluence. The spending power of the Asian consumer is increasing. In fact, ADB expects average household expenditure in developing Asia to almost triple over the next two decades.
  • The third trend is rapid urbanisation. According to the UN, Asia will account for 54% of all growth in the world’s urban population over the next four decades. This trend of increasing urbanization will continue to drive demand for infrastructure across the region.

5   Risk mitigation measures will need to keep pace with economic growth. Currently, there is a significant protection gap in the region. Despite growing by an average of about 15% per year over the last decade, insurance penetration rates in emerging Asia still hover at 1-3%, or less than half the global average. Asia’s experience in 2011 was evidence of the consequences of under-insurance. Only about 50% of Thai flood losses and 15% of Japanese tsunami losses were insured. Self-insurance by the government was the key mode of risk mitigation. As a result, national economies were burdened with the hefty recovery costs.

6   As risk awareness in Asia grows, there will be increased demand from corporate and individuals for insurance cover. According to Munich Re, premiums in Asia Pacific will double by 2020, and account for nearly half of the global premium growth over the same period. China and India are key markets, with ASEAN-4 markets of Malaysia, Indonesia, Thailand and the Philippines also expected to grow rapidly.

Risks Increasing in Size, Complexity and Interconnectedness

7   The prospects for Asia’s insurance market are bright. However, in order to achieve sustainable growth, the risks facing the region must also be well understood and managed. As its economy grows, Asia’s risk landscape is also increasing in size, complexity and interconnectedness. Let me share some perspective.

8   First, risks in Asia are increasing in size and concentration. As a result of rapid urbanization, risks are increasingly concentrated in urban centres. According to the ADB, more than 70% of Asia’s GDP is derived from cities, and two thirds of the region’s population is expected to live in cities by 2050. Many of these cities are situated in locations prone to natural hazards. The unfortunate spate of Asian catastrophes in 2011 was clear evidence of the scale of impact. The scale of losses took many by surprise – insured losses in Asia totaled about US$70bn and accounted for almost 70% of global losses that year.

9   Secondly, the risks confronting Asia are becoming more complex. Several developments indicate that the Asian risk insurance landscape will become more sophisticated, and demand for specialty and complex covers will increase. Let me cite some observations:

  • Rapid urbanization means that insurers and their clients will be looking at more complex underlying risks.
  • There will be more demand for specialty covers to support the development of key infrastructure such as telecommunications, transport, power, water and sanitation, among others.
  • Increasing concerns about food security, and heightened awareness of Asia’s catastrophe exposure, will drive demand for agriculture insurance cover.

10   Finally, Asia, and the world as a whole, is only getting more interconnected. This has resulted in loss events having unexpected domino effects. For example, the Thai floods and the Japanese tsunami disrupted global supply chains. The two catastrophes also resulted in a double hit on Japan, as many Japanese companies also have significant manufacturing operation in Thailand. With globalization, the impact of loss events will be less confined to a specific sector or geographic region. It will become even more critical to identify interdependencies between individual risks, and manage accumulation of risks well.

Accessing the Asian Insurance Opportunity 

11   What do all these mean for insurance institutions looking to access Asian opportunities? I would like to share three observations.

12   Firstly, insurers need to be in Asia to access Asian risks. Being in Asia not only offers proximity to Asian clients, but allows one to be close to the risk and supports sound underwriting decisions. An Asian presence will also afford better access to Asian markets due to the strong intra-regional trade and economic ties. These are reinforced by continued efforts to integrate and harmonize markets across the region. For example, Singapore, together with our ASEAN neighbours, has committed to deepen market integration via the ASEAN Economic Community (AEC), a single market, by 2015. In financial services, we are working to progressively liberalise the sector and provide financial institutions operating in ASEAN better access to the entire ASEAN market.

13   Secondly, insurers need to achieve a deep understanding of the underlying risks. Especially in today’s increasingly complex risk environment, the industry needs to step up its efforts to understand and identify risks. This will enable players to develop robust pricing and risk models.

14   However, given the relative nascence of the Asian insurance industry, there is less available data on Asian risks. Recognizing the importance of augmenting the data pool, several research institutions have been set up in Singapore to gather and analyze data in areas such as catastrophe risk and longevity risks. These include the Nanyang Technological University (NTU)’s Institute of Catastrophe Risk Management and the Singapore Management University’s Centre for Silver Security.

15   Finally, insurers need to identify, develop and retain the right talent. According to PWC’s recent Global CEO Survey, insurance CEOs see the limited availability of key skills as the biggest threat to growth. Nearly 80% are planning to change their strategies for managing talent as a result, and nearly 30% put filling talent gaps as a top three priority.

16   Especially in a rapidly growing market like Asia, it is imperative that the industry makes early investments in talent in anticipation of future growth. According to a recent study by Mazars in conjunction with the Asia Insurance Review, three factors have contributed to a talent shortage in the Asian insurance industry:

  • First, the industry is relatively new in the fast-growth countries of Asia;
  • Secondly, university degrees & professional certifications are unevenly matched to demand, particularly in emerging markets; and
  • Thirdly, a large percentage of students with the required educational qualifications are not familiar with insurance as a career choice.

17   In order to address these issues, the Singapore Government and the insurance industry have developed a comprehensive talent development infrastructure. To attract young professionals into the insurance industry, the General Insurance Association (GIA) conducts profiling activities at local tertiary institutions. We also have in place internship and apprenticeship programmes such as the GIA Global Internship Programme (GIP) and the SCI Insurance Executive Scholarship Programme (IESP).

18   The Financial Sector Development Fund (FSDF) administered by the MAS also provides incentives to companies sponsoring Singapore-based staff for training, including professional certification programs such as the ACII, as well as specialized postgraduate degrees.


19   To sum up, I would like to share the view that there is scope for greater government-industry engagement. Given the series of natural catastrophes over the past years, governments have realized the importance of disaster prevention and mitigation and put in place risk mitigation mechanisms, such as national catastrophe pools. At a regional level, the ASEAN Finance Ministers Meeting recently endorsed the establishment of the ASEAN Cross Sectoral Coordination Committee. This Committee aims to foster closer collaboration among ASEAN countries and bring about better regional cooperation on risk financing and insurance.

20   Engagement with the private sector will be important in this effort. The private sector can provide expertise and capacity to help governments understand and manage risks more efficiently. We understand some governments are already partnering with the private sector to provide cover for risks, such as nuclear liability and earthquake risks, too unpredictable and costly for private insurance companies to cover alone.

21   As an important insurance centre in Asia, Singapore can play a role in facilitating international insurance companies in accessing Asia and fostering dialogue among all stake-holders. There is a strong ecosystem in Singapore comprising insurers, intermediaries and service providers. MAS will continue to work with industry partners to enhance research and talent development infrastructure, and position the insurance industry here to better serve the region’s needs.

22   On this note, I wish you all a productive conference. Thank you.