1 November 2015 Insurance

Capacity-demand imbalance more pronounced in Asia

The oversupply of capacity and the resulting challenges it causes is more pronounced in Asia than other parts of the world because of the concerted effort made by many market practitioners to capitalise on the region’s economic strength, Andy Caldwell, deputy active underwriter Syndicate 1955, Barbican Insurance Group, told SIRC Today.

“There is no doubt that the Asian market is highly competitive. The oversupply of capacity relative to demand has significantly increased in recent years.

“While continued strong economic growth in the region has driven up insurance demand, this has been outstripped by the growth in capacity. The situation in Asia mirrors that of the rest of the global market, but in my view is more pronounced,” he said.

Despite this dynamic the potential of the region remains great—the challenge for the re/insurance industry is how to grow demand around products, Caldwell said.

“The potential is huge given the inherent levels of underinsurance, although this potential has been talked about for the last 10 years. While many buyers in the region acknowledge the value of property and general liability cover, their appetite to purchase insurance cover beyond those lines has been limited,” he said.

“Simply because we can offer a product doesn’t necessarily mean people will want it. They have to acknowledge the associated risks before they will consider buying cover. In areas such as healthcare, where there is a clear, tangible benefit, we have seen greater appetite.

“However, in terms of some liability lines, where the risks are less tangible, the argument for buying cover is harder to make.”

He said recent events such as August’s loss in Tianjin, China, has helped to demonstrate the tangible benefits of re/insurance and this may spark an increase in reinsurance demand for certain risks.

“We will undoubtedly, given the scale and breadth of the loss, see companies reassess their potential exposure to accumulations of losses and look at more effectively spreading their risks,” Caldwell said.

He added that big cultural differences that exist in the region must be overcome.

“The approach of the Asian insurance buyer is markedly different from that of a European or American buyer and this has to be recognised. Another factor is the logistics of transacting business in the region given the scale and diversity of countries it encompasses,” Caldwell said.

“We have to ensure that products reflect local market conditions. Close market contact is central to this and to raising insurance awareness, both for buyers and those on the ground selling the product.

“If you take our cyber solution, for example, buyers and underwriters in the region need to understand the solution is much more than simply a policy. It is a programme which goes beyond coverage to include risks assessments, forensic analysis in the event of a breach, help in establishing customer service hotlines, etc.”

Caldwell said that Barbican has looked to overcome many of these barriers by working with its trading partners in target regions, as they can provide a recognised platform ‘on-site’ from which to access local business.

“Their local knowledge, cultural understanding and existing relationships help us to promote our underwriting expertise,” he said.

Barbican already has a solid presence in the region in a number of business lines, including hull and cargo, and offshore energy. It is seeing increased interest in financial institutions and directors & officers cover and also sees cyber as an area with significant potential for growth.

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