Asia is building risk faster than protection as economies expand: Malaysian Re

Asia’s insurers must strengthen risk expertise and collaboration to close the protection gap.

Key points:
Carriers can support economic growth
Risks more complex than ever
Global reinsurance support key

Carriers based in Asia can play a key role in supporting and contributing meaningfully to economic growth in the region – but achieving that is not simply a matter of capacity, the industry must invest in ensuring it truly understands the underlying risks.

“Insurance protection and industry capability need to keep pace, otherwise the protection gap can widen even as economies grow.”

That is the view of Ahmad Noor Azhari Abdul Manaf, the president and chief executive officer of Malaysian Re. Speaking to EAIC Today, he said that the insurance industry can contribute much more than providing capacity and paying claims. What is more, the region needs this.

“As the region creates more assets, infrastructure and trade opportunities, the risks also become larger and more complex. Insurance protection and industry capability need to keep pace, otherwise the protection gap can widen even as economies grow,” he said.

“We need to ask whether we understand these emerging risks, whether they are adequately protected, and whether the industry has the expertise and capacity to support them.

Ultimately, our relevance will be measured by how effectively we help businesses, communities and economies withstand shocks, recover and continue to grow.”

“Re/insurers can play a broader role; not only transferring risk, but bringing their risk insights into a wider resilience effort.”

He stressed that insurers and reinsurers already possess significant risk knowledge through data, catastrophe modelling, claims experience and risk-engineering expertise. These capabilities can help identify where exposures are concentrated, how risks are changing and where mitigation measures could reduce future losses.

But the industry cannot improve resilience on its own. “Many of the decisions that shape risk, such as infrastructure and land use, building standards and disaster preparedness, sit outside the insurance sector. That is why closer collaboration with governments, regulators, local authorities, infrastructure agencies, academia and other institutions is essential.

“That is where I believe insurers and reinsurers can play a broader role; not only transferring risk, but bringing their risk insights into a wider resilience effort. By sharing our data, modelling, and our experience with other institutions, and combining them with their own expertise and capabilities, we can support better prevention, adaptation and preparedness before losses occur.”

Close the gap

One of the implications of these factor is a widening protection gap. He stresses that this is not caused by any single issue: affordability, awareness, distribution, product design and perceptions of risk all play a part. And insurers need sufficiently good data and risk insights to provide coverage at a price that is both sustainable and affordable, he notes.

“But there is also a catch-up challenge. As Asia urbanises and invests in infrastructure, advanced manufacturing and higher-value assets, the amount at risk can grow faster than insurance coverage. So even as penetration improves, the absolute protection gap can continue to widen.

“Closing that gap therefore requires more than simply selling more insurance. It requires better risk understanding, appropriate products and pricing, broader access and, in some areas, public-private solutions.”

Research conducted by Malaysian Re suggests ASEAN still lacks sufficient capacity to retain many large and complex risks. The CEO said this is due to a number of factors, including capital, technical expertise, data and confidence. “It is about building the right ecosystem,” he said.

“Capital is clearly important, but capital alone is not enough. You also need the technical expertise, data and modelling capabilities to understand and price complex risks. Stronger capabilities support better underwriting decisions, which in turn build confidence to deploy more capital.”

He adds that regional collaboration can help strengthen that ecosystem. “By sharing data, modelling capabilities and specialist expertise, and by developing better mechanisms for sharing risk across ASEAN, individual markets do not have to build every capability on their own. Over time, that can give the region greater confidence and capacity to retain more appropriate risks, while continuing to access international reinsurance where it makes sense.”

Global capacity support

He stresses the importance of that international support – but also that the right level of support will vary by the line of business. The aim should be “optimal” retention, he said. ASEAN already retains a high proportion of more predictable business such as motor, while retention is lower for aviation, marine hull, property and engineering, where exposures can be much larger and more complex, he notes.

“There is certainly scope for Asian markets to retain more. Regional risk-sharing mechanisms can also help spread exposures more effectively. But international reinsurance will still be needed, particularly for catastrophe risks, large infrastructure and industrial exposures, and other risks that benefit from global diversification. That should not be seen as a weakness. Reinsurance exists precisely because some risks are better shared across a wider international market.”

He is cognisant of some of the wider influences on the market. He notes that market conditions are changing – competition is likely to put downward pressure on pricing.

However, he also believes the industry is more conscious of the lessons from previous market cycles. There is greater focus on risk-adjusted returns, portfolio quality and ensuring that pricing remains appropriate for the underlying risk, he said.

“I am cautiously optimistic, but the real test will be whether that discipline holds as competition intensifies. Growth is important, particularly given the opportunities across Asia, but it has to be sustainable. At Malaysian Re, that means ensuring growth continues to be supported by technical underwriting and long-term portfolio quality.”

Bigger challenges

This ambition is set against a plethora of wider challenges. Supply-chain disruption and growing cyber risks are just two challenges. Equally, massive investments in areas such as data centres, renewable energy and advanced manufacturing, present growth opportunities but they also create new concentrations of property, cyber, energy and business-interruption risk.

“While each of these risks is important, what concerns me most is how interconnected and concentrated they are becoming. A disruption in one area can increasingly have consequences across multiple industries, markets and geographies,” he said.

“The industry is adapting, but these risks are evolving quickly. We need to continue to invest in data, analytics, modelling and underwriting expertise to understand where exposures are building and how they may interact.”

At its core, he stresses, insurance is about sharing risk so that no individual, business or economy has to bear an overwhelming loss alone.

“That principle remains as relevant as ever. What has changed is the nature of risk. It is increasingly interconnected, technology-driven, climate-sensitive and cross-border.

“Providing risk transfer alone, however will not be enough. The insurers and reinsurers that remain most relevant will be those that combine capital with technical expertise, risk insight and value-added services that help clients better understand and manage these evolving exposures.”

Ahmad Noor Azhari Abdul Manaf is the president and chief executive officer of Malaysian Re. He can be contacted at: arie@malaysian-re.com.my

For more news from the East Asian Insurance Congress conference (EAIC) click here.

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