Transformations in 2024 Driven by Shifts in Insurance Regulations

MSIG Asia’s CEO Foresees Growth in 2024 for Insurers, Cautions on Regulatory and Socioeconomic Variances

The intricate regulatory landscape across Asia is significantly influencing the insurance sector in 2024, creating a dynamic environment for insurers to navigate. With mounting pressure for enhanced offerings, escalating socio-economic factors, and a burgeoning affluent population, insurers face multifaceted challenges and opportunities.

Anna Tipping, a partner at Norton Rose Fulbright (NRF) Singapore, highlighted in a recent publication the divergent requirements across jurisdictions concerning the establishment of branches by foreign insurance firms. While some regions allow solely locally incorporated entities, others impose restrictions.

Navigating foreign direct investment and control regulations, including those governing shareholders and management changes, often necessitates regulatory approval, whether for direct or indirect modifications.

In this landscape, companies must possess a robust understanding of regulatory capital frameworks and mandatory policies safeguarding policyholders. Additionally, they must factor in group supervision and regulatory oversight concerning outsourcing activities.

In an interview with Insurance Asia, MSIG Asia CEO Clemens Philippi expressed optimism about the insurance industry’s growth potential in 2024, despite the challenges posed by various regulatory changes.

“In 2024, we anticipate a sustained high demand for insurance solutions, which implies continuous growth albeit with some impact. The effects of new insurance regulations in each market can be either positive or negative, potentially offering growth opportunities,” Philippi explained.

He identified three key drivers shaping the industry landscape in 2024: increasing demand to address the insurance gap, rising interest in health coverage, and the adoption of new technology. While these factors create favorable conditions for enhancing insurance offerings, regulatory hurdles remain a variable challenge for insurers.

“From a regulatory standpoint, the impact can be both positive and serve as a catalyst for growth, but it may also pose a minor obstacle. Many populous countries in our region, such as Vietnam, Thailand, and Indonesia, have recently implemented new regulations,” Philippi noted.

Navigating Vietnam’s New Insurance Landscape: Insights from Industry Leaders

“Vietnam’s new Insurance Business Law, enacted in 2023, introduces key changes regarding technical reserves, foreign ownership, risk management, disclosure, and dispute resolution,” remarked MSIG Asia CEO Clemens Philippi.

The National Assembly of Vietnam passed the transformative Insurance Business Law on June 16, 2022, ushering in significant reforms that impact the country’s insurance market. Effective from January 1, 2023, with certain provisions slated for enforcement from January 1, 2028, the law represents a pivotal moment for insurers and policyholders alike.

Baker McKenzie, a prominent law firm, outlined notable amendments brought about by the new legislation. These include the removal of specific compulsory insurance products, the prohibition of insurers denying sales based on qualified policyholder requests, and a clearer delineation of core insurance principles.

Moreover, the law introduces provisions for temporary life insurance, expands insurer operations and product sales, and acknowledges investments from financial and insurance groups. It also addresses outsourcing activities, facilitates online sales channels, and strengthens regulations on insurance agency operations, including requiring separate certificates for each product type.

Furthermore, adjustments to the capital adequacy ratio calculation and the establishment of principles for technical reserves are outlined in the law. Amendments also cover aspects such as foreign ownership, risk management timelines, enhanced information disclosure requirements, and more robust dispute resolution mechanisms.

As Vietnam’s insurance landscape evolves under this new legal framework, industry leaders are tasked with navigating these changes to ensure compliance and capitalize on emerging opportunities.

Navigating Thailand’s New Risk-Based Capital Framework: Insights from Industry Leaders

“Thailand’s adoption of a new risk-based capital framework will undoubtedly impact insurance companies operating in the country,” noted MSIG Asia CEO Clemens Philippi.

Thailand’s regulatory landscape, as assessed by Fitch Ratings, is considered “less developed” and is primarily governed by the Insurance Act, overseen by the Office of Insurance Commission (OIC). Notably, the OIC has rolled out a risk-based capital (RBC) regime, transitioning to RBC2 in 2019.

Under this framework, insurers are mandated to evaluate their internal risk governance structures and ensure capital adequacy through Enterprise Risk Management and Own Risk and Solvency Assessment frameworks.

Furthermore, the OIC exercises strict control over various aspects of insurer operations, including product pricing, premiums, marketing, and selling practices. In instances of insurer insolvency, the regulator intervenes by imposing restrictions on new policy issuance and asset transfers.

Moreover, the OIC is actively engaged in promoting stability and sustainability within the insurance sector through a comprehensive five-year development plan. This plan focuses on fostering competition within the digital economy and enhancing product accessibility to better meet consumer needs.

As Thailand’s insurance landscape continues to evolve under this new risk-based capital framework, industry leaders must adapt their strategies to ensure compliance and seize emerging opportunities in the market.

Indonesia’s Evolving Insurance Landscape: Navigating Minimum Capital Requirements

In Indonesia, recent legislative changes have ushered in a new era for the insurance industry, encompassing various facets such as insurance products, distribution channels, reinsurance arrangements, and Sharia-compliant insurance.

A notable development highlighted by MSIG Asia CEO Clemens Philippi is the significant increase in minimum capital requirements slated to take effect gradually until 2028, reaching up to $1 trillion. This substantial hike in capital thresholds could serve as a catalyst for consolidation within Indonesia’s fragmented insurance market in the years ahead.

Fitch Ratings also anticipates a shift towards tougher minimum equity requirements for Indonesian insurers, a move expected to spur market consolidation and enhance competitiveness. Furthermore, new regulations governing credit insurance are poised to impact micro and consumer lending practices, as banks will now bear a portion of insured default risk previously shouldered solely by insurers.

The Financial Services Authority (OJK) has outlined plans to implement substantial increases in minimum equity requirements by the end of 2026, followed by further escalations by the end of 2028, particularly targeting insurers offering credit insurance products. Insurers failing to meet these augmented requirements may be compelled to seek capital infusion or explore merger and acquisition opportunities to bolster their financial standing.

While approximately 90% of Fitch-rated issuers are expected to meet the 2026 requirement, a significant portion, approximately 62%, may necessitate additional equity by 2028, particularly within the non-life and reinsurance sectors. While some insurers may rely on organic capital generation to fulfill the 2026 mandate, meeting the 2028 criteria could pose challenges, prompting the exploration of alternative strategies.

The repercussions of the new credit insurance regulations on banks remain uncertain, as tightening underwriting standards may improve risk profiles, albeit at the cost of retaining more risk, potentially impacting profitability. Additionally, heightened capital requirements for credit insurers may prompt smaller non-life insurers to exit the segment, fostering a more robust and competitive landscape in the long run.

The Ascendance of Asia’s Middle Class: Implications for Insurance

According to Clemens Philippi, the middle class in Asia’s emerging markets is on a steady rise. This trend aligns with findings from the Asian Development Bank’s (ADB) report, “Key Indicators for Asia and the Pacific 2022,” which suggests a notable reduction in extreme poverty levels by 2030, with less than 1% of the population expected to live in extreme poverty. Moreover, projections indicate that around 7% of the region’s population may remain moderately poor, while approximately 25% could be deemed economically vulnerable. Encouragingly, the forecasts foresee about 43% of the population achieving economic security, with 25% transitioning into the middle class by 2030.

Insights from the Organisation for Economic Co-operation and Development (OECD) further shed light on the characteristics of the middle class in Emerging Asia. Notably, middle-income groups in these regions exhibit similarities with lower-income segments, suggesting potential alignment in policy preferences. This convergence underscores the role of the middle class in advocating for inclusive policies that benefit broader segments of society, including the poor and near-poor.

The OECD study underscores the importance of integrating the perspectives of marginalized groups into policy discussions, particularly in areas where the interests of different income strata may diverge. This recognition emphasizes the imperative for policymakers to consider the needs and priorities of vulnerable populations when formulating and implementing policies to address socio-economic challenges.

Philippi emphasizes the continued accumulation of wealth among the burgeoning middle class, coupled with a growing demand to bridge the insurance gap and safeguard the assets of these aspirational populations. This underscores the pivotal role of insurance in providing financial security and protection amidst the dynamic socio-economic landscape of Asia’s emerging markets.

Long-term Strategy

The CEO of MSIG underscored the significance of vigilantly monitoring external factors such as economic climates and reinsurance market dynamics. He pointed out that the renewal season of 2022 witnessed a notable surge in reinsurance rates, partly spurred by unexpected occurrences like a major hurricane hitting the Florida region, affecting both American and Asian markets.

Despite these hurdles, Philippi expressed confidence in MSIG Asia’s readiness, attributing their resilience to thorough risk management protocols. The company’s actuarial and claims teams diligently track claim patterns and inflationary trends, ensuring that reinsurance partners stay informed and rates are adjusted appropriately to sustain stability.

He particularly highlighted MSIG Asia’s proactive engagement with clients, spanning from SMEs to corporate entities, in tackling potential risks linked with supply chain disruptions and inflation.

“We collaborate with clients across various sectors, explaining the implications of inflation on insured sums and the risks of underinsurance if sums insured aren’t accurately declared, in a proactive and transparent manner,” he elaborated.

Philippi affirmed the company’s commitment to a conservative investment approach, which has proven effective in cushioning potential shocks, particularly under new accounting standards like IFRS 17 and IFRS 19.

Nonetheless, he emphasized the necessity of adapting to emerging threats, including climate change and geopolitical instabilities.

“Climate change and natural catastrophe events remain on our radar. We will continue to focus on these aspects and explore innovative products in response,” Philippi shared with Insurance Asia.

MSIG Asia has already initiated innovative measures to tackle these challenges, including exploring parametric offerings for sectors like agriculture and investing in predictive climate change modeling fintech startups to bolster risk assessment capabilities.

“On the inflation front, we anticipate a continued stabilization. Although there was significant buzz around inflation during the 2020 to 2023 renewal period, we observed a flattening trend last year, and we anticipate this to persist,” Philippi commented.

“However, this outlook remains subject to global events, as highlighted earlier,” he concluded.