This section includes insights related to:
- Market Overview
- Country Market and Claims Dynamics
- Rate Trends
- Three Featured Industries: Retail & Wholesale Trade, Construction, and Manufacturing
Select a country to read more
Asia Pacific Q1 2021 Market Dynamics
Asia Pacific Q1 2021 Claims Dynamics
Asia Pacific Q1 2021 Rate Trends
While some parts of the region – like Australia and New Zealand - have returned to minimally restricted pre-COVID norms and activities (including travel), others – like India, Thailand, The Philippines, and South Korea - are experiencing spikes in infection rates as the race to vaccinate accelerates.
Broadly, the region is expected to grow in 2021; optimistic businesses and consumers are driving up forecasts which were higher at the end of Q1 than at the beginning. The cycle of optimism has led to a further surge in house prices with growth levels in some areas at 17-year highs.
Even as the region looks forward to a 2021 rebound, concerns remain. The strained trading relationship with China has led many firms to seek new or more diversified homes for their products. The workplace of the future will have fewer full-time on-site workers, leading employers to explore options such as job re-distribution to offshore, lower-cost regimes and an acceleration of AI solutions. And the COVID variants continue to proliferate…indeed, it is a race between virus and the vaccination.
Insurance Market & Key Risks
The market is divided: Some insurers have rebalanced their portfolios and are, once more, focused on growth whilst others continue to focus on remediation and a return to profitability.
Uncertainty remains high: While the end seems to be in sight, the ultimate financial consequences of COVID-19 and related restrictions, as well as their impacts on risks, exposures, and claims, remain difficult to estimate and quantify. All eyes are on FCA Business Interruption test case.
Coverage derogations are a growing concern: Insurers are imposing across-the-board clarifications and exclusions, particularly related to silent cyber, infectious disease and contingent business interruption. Newly proposed language is at the heart of many negotiations with differing insurer legal opinions driving a lack of alignment amongst insurers which is leading to differing terms and conditions on policies.
The underwriting environment remains difficult: Information requests continue to get ever-more detailed. Often insurers are unable to formalize quotes until all requests - for detailed information and compliance with risk control recommendations - are satisfied. This can lead to last minute deviations from expected terms.
Market trends and COVID issues are challenging the claims environment: The impacts of the hard market have strained insurer financials and COVID-related impacts have disrupted operations, creating increased uncertainty. These challenges have resulted in a high degree of claims scrutiny, greater reliance on outside coverage counsel, and burdensome information demands. This is creating frustration, testing relationships, and, left unchecked, may lead to unnecessary delays and less favorable claims outcomes.
Re-evaluate cyber needs: Clients should consider the claims management capabilities and philosophies of insurers when structuring programs for this risk, with loss frequency increasing materially.
There is a shift in focus on COVID19 related business interruption: Australia has become a focus of the global discussion on this topic with test case activity under way related to Quarantine Act / Biosecurity Act, and broader topics analogous in many ways to those that have previously been subject to the FCA test case in UK.
Tips for Clients
Review your risk transfer strategy: A strategy set a few years ago based on market pricing, coverage availability, capacity deployment, and your then risk profile is likely not optimal today. Pay special attention to supply chain, exposure to natural catastrophe and cyber risk.
Test your market relationships: Many insurers need to increase thier portfolio irrespective of risk quality so an alternative insurer may very well think differently about the pricing of your risk. Be wary; however, as it may well prove only that your current insurer is best placed. Submission quality and understanding the key areas of insurer concern are paramount to favorable outcomes.
Leverage alternatives: Work with your Aon team to explore options to help mitigate rate increases. Weigh deductible options carefully to ensure optimal risk-retention tradeoffs. Consider facility solutions.
Build claims relationships: Consider engaging with insurers and claims service providers pre-loss, to better understand the claims process (in the event of a claim), to agree lines of communication, protocols and expectations, and to form relationships with key claims individuals/teams and decision-makers.
Asia Pacific Featured Industries Q1 2021 Overview
Retail & Wholesale Trade
Industry Issues The retail industry remains highly susceptible to COVID-19 restrictions. As restrictions are being re-introduced in parts of the region, household spending is again decreasing. Non-essential stores, particularly, small businesses, continue to suffer while e-commerce continues to gain significant momentum. Traditional retailers are working to quickly adapt their business models to enable electronic engagement and reduce susceptibility to future restrictions. Market Conditions COVID-19 related restrictions have led to a notable decrease in exposure values and claims, and some insurers are imposing higher rating structures in order to maintain premium levels. However, through successful broker negotiations, well-performing risks are experiencing only modest increases. While capacity is more limited on a per risk basis, the industry remains largely attractive to insurers and as such additional capacity providers are often readily available to fill any gaps created by line size reductions. That said, underwriting scrutiny remains high; insurer requirements for detailed information continue to increase, especially related to COVID-19 safety measures and supply chain management. Strikes Riot and Civil Commotion is more often sub-limited or completely excluded in some parts of the region.
A Look Ahead In 2021, e-commerce is expected to continue to grow at a double-digit pace. Insurance market conditions will continue to be challenged and a disconnect between an ever more complex client need and a market shift to limit cover in some of these key areas will challenge buyer views on the relevance of the products they purchase. Insurers will need to respond to this challenge.
Industry Issues Largely as a result of heightened government investment - particularly in infrastructure projects such as massive railway expansions in China, Japan and Australia - the construction industry continued to grow in 2020, unlike most other industries. Residential construction did experience a slow-down; however, the strong government focus on affordable housing, particularly for developing countries, is leading to significant growth projections for the industry in 2021 and beyond.
Market Conditions Pricing varies widely based on country and risk profile, with some risks experiencing modest rate increases while other poor performing risks experiencing very significant increases. Across the region, underwriting requirements have become onerous, and guidelines are being applied more stringently, as underwriters remain cautious following poor loss performance across parts of their portfolios. Faced with more information to review, underwriter response times have risen. Capacity is contracting, particularly for hard commodities / steel risks, and underwriting expertise in this space is hard to come by. Coverages are narrowing; Strikes Riots and Civil Commotion, as well as Terrorism, is being excluded or severely limited. A Look Ahead As governmental investment continues, long-term growth projections remain strong for the construction industry as a whole. The insurance market is expected to remain challenging, with continued rate increases, coverage pull-backs, and extensive underwriting demands. Insurer focus on Professional Indemnity, Delay in Startup coverage, and Defects Coverage are expected to continue for some time.
Industry Issues As economies recover from the pandemic, global trade is surging – and demand for Asian exports is increasing, creating momentum for the manufacturing sector, especially, electronic components, in the region. The region has seen massive growth in output and new orders, despite ongoing supply chain challenges which have driven up prices. The chip shortage for auto exporters continues to be a pain point.
Market Conditions Insurance market conditions remain modestly challenging as underwriters focus on returning to profitability after poor performance in this class in 2020. Indeed, a large-scale fire in the region has led some insurers to reduce capacity for some manufacturing risks; however, capacity is generally sufficient. Rates are increasing, in most cases only modestly, but more significant increases can be prevalent depending on construction, occupancy and loss performance. Appetite is focused on risk quality and there is a growing disconnect between the poorer performing or higher risk placements and those in the ‘sweet spot’ of capital providers. Those in the former category will continue to find risk transfer challenging while others will have significantly more options available to them. Insureds should continue to review optimal risk transfer points and, as with many occupancies, by doing so may well be able to drive savings in Total Cost of Risk despite the market conditions.
A Look Ahead As the world returns to a state of normalcy, global demand for electronics may somewhat ease; however, the manufacturing industry overall is expected to remain strong. The World Trade Organization has raised its trade growth projection to 8% - a notable rebound from the 5.3% contraction in 2020 - and manufacturing will be at the heart of this. Insurance market conditions will remain somewhat challenging but will likely stabilize in 2021, particularly for some of the better performing risks in the manufacturing sector.