Asia-Pacific offers reinsurers a unique opportunity to grow and help solve societal challenges such as the protection gap. But it must remain level-headed about the balance of risks and potential returns, Victor Kuk, Swiss Re’s head of P&C reinsurance for SID (Southeast Asia, India, Hong Kong, Taiwan and South Korea) told SIRC Today.

“Asia is a big growth market for Swiss Re. A number of countries are growing fast economically, and exposures are increasing. We expect emerging Asia will outgrow advanced Asia and that will drive the market conditions that we will see in the next few years,” Kuk said.

He argued this could set the stage for a perfect storm of economic growth, rising exposures, a widening protection gap and the ever-present threat of natural catastrophes.

In the midst of these challenges and opportunities, “narrowing the protection gap in Asia-Pacific remains a key focus for us”, he said.

“There needs to be market equilibrium,” he emphasised, stressing the importance of “clear alignment of interests across the insurance value chain along with sound structures and advances in data-driven underwriting to ensure that cat models can more adequately measure risks”.

Secondary perils such as floods—a major cause of losses in Asia—are often “difficult to model”. This requires a deeper understanding than the current market offers, he said.

A prime example of this can be seen in Malaysia, he said, where previous loss experiences did not reflect rapid urbanisation. “Historical indicative losses of $50 to $100 million were a far cry from the $600 million of flood losses recorded in 2021.”

“It cannot be emphasised enough that data quality is crucial to achieving meaningful modelled results—this is an area that Asia-Pacific still needs to catch up on,” Kuk asserted.

He pointed out that strong commitment is needed across the insurance value chain to “sourcing better data, sharing it more transparently and being more proactive” in factoring new information into risk assessments.

Accumulation brings problems

Asia’s rapid growth brings with it an increasing accumulation of asset values, making urban hubs such as Tokyo, Mumbai, and Shanghai increasingly susceptible.

“Asia-Pacific as a region accounted for more than 30 percent of nat cat events in 2022,” said Kuk. This accumulation means premiums must reflect the amplified risk, ensuring the re/insurance industry remains sustainable, he said.

The balance between opportunity and challenge gets ever more intricate. Kuk thinks that over time emerging Asia will grow faster, resulting in increased exposures. Yet, the premiums aren’t necessarily keeping pace with the growing exposures, leading to an “imbalance in the market”.

It’s not just natural catastrophes: further complicating matters is the region’s political instability, especially in relation to China. “As well as the dispute in the South China Sea there’s a lot of tension with China, and some of the Southeast Asian countries,” Kuk observed, indicating broader geopolitical issues that might shape the industry’s path in Asia.

Looking forward, Swiss Re will remain focused on its conventional business lines—property, casualty, and specialty—but there will be more.

“Casualty mainly for us is liability accident,” Kuk said, adding that specialty will be a “key line of business in terms of opportunity in Asia”.

Highlighting opportunities, he noted that some specialty lines such as engineering, which are linked to the region’s economic growth, and agriculture, should be treated differently, sometimes partnering with governments to support farmers during events such as droughts.

There’s also a push towards renewable energy, facilitating the transition from fossil fuels to more sustainable options. Lastly, he mentioned credit and surety business in “selected Asian markets”.

Another primary objective for Swiss Re, Kuk emphasised, will be to continue work towards closing the protection gap. This includes leveraging technology, parametric structures, and better data models for natural catastrophe exposures.

“We will continue to partner with governments to come up with solutions to address these pressing needs,” he said.

Kuk’s perspective on the market mirrors his understanding of Swiss Re’s path. “We don’t expect new capacity to come into the market,” he said. He underlined the need for pricing adequacy and discipline across the board.

“We will continue to provide capacity to support but we need to make sure that the terms and conditions and the returns are also good for us,” he stressed. “That will be the trend you can expect to see as we go into 2024.”

Kuk concluded: “The market continues to be volatile, and the impact of climate change remains significant. More discipline will be needed heading into the renewals—which is what we expect to see in 2024.”

Japan’s uncertain risk landscape

Some of these themes were echoed by Atsuhiro Dodo, Swiss Re’s head of Japan and country president. While Japan stands out as one of the region’s most mature markets, he noted that it too grapples with a future clouded by uncertainties, primarily due to climate risk, rapid urbanisation, and a shifting economic backdrop.

As in other parts of Asia, Dodo said, the industry needs a proactive approach and date-driven innovation to navigate these challenges.

“The risk landscape is currently uncertain,” he said. “Climate risk, in particular, is a major concern. We are seeing that this exposure is growing faster than premiums and there are clear signs of large losses.”

He highlighted the devastation caused by typhoons Jebi and Hagibis as a case in point; the floods were responsible for over half the insured losses.

He believes these events signal a pressing need for the industry to reassess its existing models. “One of the main risk drivers is asset accumulation,” he explained, which has caused exposure to spike in vulnerable coastal zones.

With the United Nations forecasting that 70 percent of the global population will live in cities by 2050, Dodo warns of “extreme local events happening more frequently”.

Complicating matters further is that inflation which, he says, Japan hasn’t grappled with for decades, is now on the radar. “We also see geopolitical instability, which brings in more concerns and volatility,” Dodo added.

This economic turbulence when coupled with inflation results in heightened replacement costs for re/insurers, causing a ripple effect across the market, he noted.

“The market is never quiet and never boring,” he remarked, suggesting that the industry has to brace itself for more surprises and challenges. Recalling the Thai floods of 2011 which impacted many Japanese manufacturers, and then another surprise in 2022 during the floods in South Africa, impacting many Japanese interests abroad, he said: “Ten years is enough to create a blind spot.” This calls for greater preparedness, although Dodo concedes that “climate risks are difficult to monitor”.

On the wider Asian context, he mentioned: “In Asia, there is a great disparity between the economic losses and insured losses from nat cats. In 2022, 86 percent ($43 billion) of Asia’s nat cat losses were uninsured,” referencing data from the Swiss Re Institute’s latest nat cat sigma report.

What does the future hold? “Investment in new tech and infrastructure incorporating the dynamic and changing nature of risks,” Dodo affirmed. “Our focus should increasingly turn to climate adaptation and the value of nature-based solutions,” he suggested.

Exciting technology

Complementing Dodo’s insights, Lauren Liang, global head of growth & innovation at Swiss Re Reinsurance Solutions, highlighted the transformative role of technology.

For her, and Swiss Re at large, the triumvirate of artificial intelligence (AI), embedded insurance, and parametric insurance represents the future’s “three most exciting” technological avenues.

Liang elaborated: “The key lies in adapting and leveraging technologies such as AI, drawing insights from data, focusing on data-driven underwriting, analytics, and automating processes.” She contends that such an approach will inevitably “streamline and enhance the efficiency of the value chain”.

She cautions that technology is but one piece of the puzzle. “True innovation and digitisation are very much about understanding the customers, clients, and being very purposeful on what our use case should be,” she said. “We should be more use case-led rather than technology-led,” she asserted.

While Swiss Re is seeing greater adoption and appetite for AI and data analytics in Asia-Pacific, Liang envisions “the emergence of new business models” influenced by the sharing economy. She believes these innovative models will continue to emerge, and profoundly shape the trajectory of the insurance sector.