Willis Re looks realistically at the Asian protection gap

A core quality of the insurance industry is realism: the acknowledgement that not only will life sometimes go occasionally wrong, but also what the accurate odds and chances are of that happening.

Mark Morley, managing director Asia-Pacific for Willis Re, spoke to the 1.1 Club, Intelligent Insurer’s online and on-demand platform for one-on-one interviews with industry leaders, to give his opinion on some aspects of the insurance industry.

There have been significant pressures on the market in 2020 and 2021, given that the world is still in the throes of dealing with a global pandemic. The speed and severity of the global lockdowns have left many still cautious.

So, with that in mind, what is the current state of the Asian insurance markets?

“With the caveat of generalising,” said Morley, “which I suppose we have to do when we talk about a region as big as ours, on the pricing side, we see the continuation of what we saw at the end of last year, which was a flattening out of rates.

“We’re not seeing a deterioration of pricing in many lines. But we are seeing, in a couple of lines, some hardening as well, particularly in those that need some significant facultative support.”

Away from the state of the markets, a key theme around SIRC this year has been the protection gap across the region, which has been notoriously large for some time, and perhaps larger in this part of the world than anywhere else.

Many, when asked about this, talk about the need for the industry to work to close the protection gap. Morley takes a somewhat-somewhat different tack.

“We have a tendency in this industry to navel-gaze,” he said, “but we need to harden ourselves a little bit. I think we’ve done a great deal, particularly in the recent past, in terms of what we can do in engaging stakeholders beyond our industry around supporting sovereign or other schemes around a world.

“A good example would be the Insurance Development Forum and the Singapore-based Global-Asia Insurance Partnership. My sense is that there’s been a significant drive for some time to try to engage stakeholders in solutions to the protection gap.”

There have been, said Morley, significant successes. He lists ventures in Thailand, India, and the Philippines in this regard. The problem, he went on, is that the significant underlying problems have not been solved.

“Real progress,” he said, “requires an engagement of one core stakeholder—government—to deliver the kind of solutions that are going to make a meaningful change to the protection gap. It means that the government has to be involved and engaged. The industry is doing what it can, and we can do more, but we won’t have meaningful success without their engagement and commitment.”

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No easy solution for pandemic risk

The industry, said Morley, is limited in its capability to handle pandemic risk. It cannot, he said, offer blanket solutions in this regard.

“The short answer is that I don’t think it’s our job or competency to do this. We are a vital stakeholder in providing solutions, however. A great deal of work has been done in making sure the exclusions are in place and are sensible for applications. But we’re not in the business of providing a solution on our own,” he said.

“We are experts in things such as how to handle tail risks so you can see how that partnership would work at the sovereign level.”

Environmental, social, and corporate governance (ESG) is a recurring theme. In Europe, it has been the buzzword in investment circles for 2020 and 2021, particularly around areas such as ‘green’ investments and managing the energy transition. But what is the conversation around ESG like in Asia?

“If we break ESG down to its component parts,” said Morley, “the ‘S’ and ‘G’ pieces have been of relevance and of import for some time. The corporate governance piece has improved dramatically over the time I’ve been in the region. There’s no question about that. It’s the same with the societal piece.

“It’s the environmental piece where the worry exists, particularly on the reputational side.

“The bottom line is those portfolios traditionally have within them exposures to things such as coal. They don’t have the expertise or confidence in transferring to a low-carbon portfolio. Those are areas where we’re having to work quite closely with our clients on managing the exit from a traditional portfolio and the entrance into a new portfolio, with all the changes that incurs around coverage, management, and pricing.”

ESG brushes up against the issue of climate change. That, said Morley, is itself a global conversation that has taken on a stronger voice and profile, particularly given the recently-concluded COP26 meeting in the UK.

“The data around that,” he said, “is a large part of what we do in terms of advising our clients, whether we are building, or providing new deterministic scenarios for them, or giving input on the vendor model, competency, and adequacy,” Morley said.

“It’s something we’ve been doing as part of our core proposition. That won’t change. But our primary focus is going to be on that physical risk piece. That’s where we’re going to continue to focus on our investments and attention. But it doesn’t mean to say that we’re oblivious to the impact on portfolios.”

To view the full 1.1 Club interview click here