Insurers battle in a region ripe for growth

Asia is still underinsured and underserved. And that is why all the insurance companies are very optimistic about Asia, since there is much room for us to grow.

June 17, 2009

By Jung Ha-won

The world’s major insurers are hungrily eyeing Asia as the industry’s next big market.

And accurately figuring out where and how people are willing to take risks is critical to surviving the industry’s increasingly cutthroat competition, especially for reinsurers such as Swiss Re, which have to cover and provide protection to insurance companies, said Raymond Yeung, a Hong Kong-based senior economist at the company.

Yeung, an expert in health care economics, especially in China, visited Seoul yesterday to present the firm’s latest research on the risk-taking behavior of Asian consumers. Yeung, covering the Asia-Pacific region and producing publications and research for its insurance market, said he is an avid fan of local TV dramas and greeted reporters in fluent Korean.

Q. Tell us about your research and how your work can help insurers make business decisions overseas.

A. Swiss Re is probably the only insurer with a long [history of] publications focusing on insurance research. We have a fairly strong database about the world’s insurance industry for the past 20 or 30 years. My unit, economic research, is responsible for producing about five to six research publications annually, which provide some insights into the industry to government regulators. Our research helps insurers, in the long term, design new products and decide on the details of product design, marketing and distribution.

For instance, a growing number of U.S. insurers are adopting an "awareness program", where health insurers help policy holders to live healthy lives, for instance giving special discounts on premiums to those who maintain healthy lifestyles, like regularly going to a gym. By informing insurers of demographic trends in risk-taking attitudes, we can alert them about what’s happening in the environment.

Q. What part of your latest research did you find most interesting and noteworthy?

A. The survey showed that people in more developed Asian countries like Singapore or Australia are more likely to take risks in their lives than people in less-developed economies like China and India.

That was really contrary to our preconception that relatively poorer people are more willing to take risks. We used to think that when people are satisfied with their basic needs, they will think about security and protecting what they have now. But what we found was the other way around - that people, when they do not get their basic needs, may think about their basic security more and more and become risk averse.

In the consumer risk attitude index based on the survey, Australia topped the list, followed by Hong Kong, Japan, Singapore and Korea, while India was at the bottom. So this may have some implications as to whether we in the insurance community are actually serving advanced economies and developed markets well.

Q. As someone who has been following developments on Asia’s insurance markets, what do you think about its prospects? What do you think will be the biggest issue for the region’s insurance market down the road?

A. The word is "underinsured". Insurance penetration, total insurance premium volume divided by GDP, in the region is far lower than other regions including North America and Europe. That number in Asia as of 2007 was 6.23 percent, far below 8.71 percent in North America and 8.34 percent in Europe.

If you look in particular at the non-life industry segment, Asia’s number is only 1.59 percent, far lower than 4.62 percent in North America and 3.01 percent in Europe. This is an area we should explore, because these numbers highlight that Asia is still underinsured and underserved. And that is why all the insurance companies are very optimistic about Asia, since there is much room for us to grow.

Another issue is aging, because many Asian countries, particularly Korea, are aging rapidly. So there will be more people who no longer have earnings, drawing down on their savings, starting to get sick more often and not being protected enough.

Q. Korea’s health care community is working hard to establish its country as a destination for medical tourism for foreigners. As an expert who pioneered the medical tourism initiative for the Hong Kong Trade Development Council, give us some of your insights.

A. I think in terms of health care tourism , the prime principle is to provide quality services. And the insurance industry can make a contribution to this by offering coverage on medical malpractice and medical institutions’ potential liability. If hospitals are underinsured and malpractice involving foreign patients is not well covered, how can we expect the doctors to perform quality service for their patients? And if people know there is a safety net against potential errors by doctors, they might be more inclined to come to Korea.

There is a strong link between the level of insurance and doctors’ professionalism and the quality of service they provide. If you do not set up basic infrastructure in the health care sector, including insurance against malpractice suits, any slogan or initiative you back will have a lower chance of success.

Also, one key issue any city needs to address is how they will refer patients from one market to another, and that actually is a big limitation since Hong Kong has to attract more patients from outside.

For patients who are treated for cancer or any chronic disease, the medical institution should have a full medical history and patient’s record, plus a secure way to get those materials from their home countries and to refer them from one country to another.

So, any city offering a full range of medical services should address ways to establish information sharing, patient referrals and proper doctor practices. Otherwise, patients may go through same procedures over and over again, which is highly inefficient in terms of the delivery of service.

Q. I hear a lot of experts saying China’s life insurance market will become one of Asia’s largest within several years. A lot of Korean insurance companies are trying to win a foothold in the Chinese market as a result. Do you have any advice for them?

A. The health care sector in China is very unique and very dynamic. I think the political leaders in China are thinking about reforming the whole market. And one of the suggestions we made in a 2007 report partly commissioned by the China Insurance Regulatory Commission was that China needs to align the whole health insurance system with so-called "multilayer-basis services" where the government provides a very basic layer of services and commercial insurers, for instance China Pacific Life Insurance or China Life Insurance, address segments for higher-value medical services.

And without knowing the dynamic between regulatory changes, hospitals, patients, government agencies and commercial insurers, any foreign insurer, not just a Korean one, will not be able to provide good services or enter the market.

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Source: http://joongangdaily.joins.com/article/view.asp?aid=2906195