As rapid economic development, population growth and urbanization lead to increased insurance penetration, Asia Pacific represents a key area of growth in the global marketplace, according to a report published by Aon Benfield, entitled “Welcome to Asia Pacific.”

The guide provides a snapshot into economic fundamentals, rating agency perspectives, political cultures and regulatory environments of 16 Asia-Pacific countries, aiming to identify growth opportunities for global market insurers and reinsurers seeking diversification, or Asian firms looking for multinational expansion.

“The Asia Pacific region is home to more than half the world’s population, with diverse societies, cultures, economies and regulatory regimes. Rapid economic development, population growth and urbanization—combined with rapidly evolving insurance regulation—will lead to increasing insurance penetration,” according to George Attard, head of Aon Benfield Analytics for Asia Pacific.

“While this will create the potential for significant organic growth, there is also a notable opportunity for growth in specialty lines and product innovation,” he said.

Malcolm Steingold, CEO of Aon Benfield for Asia Pacific, said: “The greatest opportunity not only for 2015 but for the immediate future is the development of new products to cater for the expanding universe of risk and also to increase penetration into uncovered conventional risk across the region.”

Aon Benfield sees growth opportunities across all the economies of Asia, Steingold added. “The scale of the opportunity varies substantially from country to country and is due to a combination of factors including GDP growth, level of insurance penetration and the size of the population. Taking these factors into account, China and Indonesia stand out with other Asian economies showing significant potential.” (A brief highlight of the guide’s commentary on China and Indonesia can be found below).

Aon Benfield’s Insurance Risk Study, published in 2014, listed five Asian markets in the top 10 of its Country Opportunity Index, which identified the world’s most promising property and casualty markets. Singapore comes third in the list of 50 countries, immediately followed by Hong Kong, Malaysia and Indonesia.

According to the “Welcome to Asia Pacific” guide, India and China—representing the BRIC countries—enjoyed the highest compound annual growth rate (CAGR) of non-life premium at 21 percent and 20 percent, respectively, from 2009 to 2013. Thailand, Vietnam and Indonesia also enjoyed significant growth with CAGR above 15 percent.

While developing markets in Asia Pacific enjoyed fast growth, the guide reveals that the insurance penetration rates remain low. For the year ended December 31, 2013, non-life penetration rates for India (0.6 percent), China (1.1 percent), Vietnam (0.7 percent) and Indonesia (0.4 percent) were below the 1.4 percent Asia Pacific average and well behind developed markets in this region such as Australia, New Zealand and Korea.

This underscores the potential of these markets in terms of future opportunities, the guide said.

Highlights of the guide include comments on two countries with strong growth potential—China and India:

• China. “The China insurance and reinsurance market potential remains significant given low insurance penetration, continued growth of the economy, and most importantly, a clearly stated government desire to see the market continue to grow and diversify in its product offering. From a line perspective, significant growth has been achieved in recent years in the non-life sector such as agriculture, liability, and credit—mostly due to government incentives and guidance.

“Personal lines in China continue to be largely an untapped market, except motor. Motor insurance is currently tariffed and generally provides for low volatility, high volume business, the majority of which is retained by insurer….”

Specialty lines have generally performed better than property and engineering which continues to be a very competitive market, the report said, noting that China’s catastrophe risk is still in an embryonic stage.

• Indonesia.“The insurance market in Indonesia is growing through the increase in the number of automobiles and scooters, micro financing schemes, large scale commercial projects, and infrastructure development. The impact on reinsurance is largely around commercial lines, specifically the development of infrastructure and public utilities,” the Aon Benfield report said.

“The new government has assigned the infrastructure and public utilities sector as a key area of focus, after a lack of any significant investment for decades. Insurance rates have been growing to optimum levels since early 2014 with the introduction of the motor tariff which is expected to be maintained for at least the next three years. However it is expected that earthquake and flood rates are likely to be reviewed and changed in the near future due to the recent losses on these programs,” the guide said.

“There is over-supply in the [Indonesian] reinsurance market as reinsurers look to support the local cedants and benefit from the growth in premiums from the new tariff.” Reinsurers in the market are looking to consolidate in order “to increase scale and establish more flag positions,” while multinationals are looking to set up joint ventures on the direct side, the guide continued.

Source: Aon Benfield