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Aspen Opinion

In Tune with Demand

October 30, 2014

Asia-Pacific has strong growth, low insurance penetration and increasing risk awareness. Will these factors ensure success in its (re)insurance sector?


A recent report from the Asian Development Bank highlighted Asia's vulnerability to natural disasters as being greater than any other part of the world and the need for viable risk transfer.1 The region is impacted by multiple perils with the incidence of more than 58 percent of the world's earthquakes, a maximum frequency of typhoons and the occurrence of six of the top 10 most expensive floods in the past century.2 Asia has borne almost 50 percent of worldwide disasters in terms of economic costs but only around 8 percent of insured losses. This gap has been costly: in the last 40 years, direct physical losses in the region have outpaced the growth of gross domestic product.3

Disaster risk transfer should become a key policy priority given the concentration of catastrophe risks in the region and (re)insurance and capital markets have a pivotal role to play. Lack of reliable historical data is, however, just one of the challenges that have to be met. This issue was highlighted in a recent Aspen Re article about tsunami risk which also examined the continuing evolution of academic thought which needs to be incorporated in (re)insurance risk analysis.4 The developing body of opinion concerning Coulomb stress transfer in relation to earthquake risk is another such example.5

Investment in research and development provides better understanding of risks and insights for innovation and product enhancement. There is an increasing propensity to share information among the insureds and their reinsurers as primary insurers have improved their data management techniques. In addition, given the experience of non-modelled losses in 2011 there is now greater appreciation of the omissions from these models as well as understanding and quantifying the risks which are outside the standard vendor models. The events of 2011 (including both the Tohuku earthquake and Thailand floods) showed that in some areas, the market had insufficient data to justify the pricing and appropriately measure the accumulation risk.


The incidence of natural catastrophes in the region has often caught the headlines but there is scope for innovative (re)insurance solutions in other risk groupings. China is the second-largest economy in the world and its rapid growth and development have contributed to its increasing pollution problem. In February 2013, The Ministry of Environmental Protection (MEP) and the China Insurance Regulatory Commission jointly introduced the Guiding Opinions on Pilot Scheme for Compulsory Environmental Pollution Liability Insurance. This requires the purchase of compulsory pollution liability insurance for companies with high environmental risks operating in China.

There is significant premium potential for this class that has been estimated at RMB20 billion (US$3.26 billion).6 Currently only a limited number of domestic companies, most of which have foreign joint ventures, are able to provide this compulsory insurance. Local companies have not been able to participate due to lack of expertise and risk management capabilities. Reinsurance companies with global experience, such as Aspen Re, could partner with targeted local companies in selected cities and set up a framework which will not only provide reinsurance coverage to the ceding company but also risk management services. This would allow mitigation of loss to third-party property (and bodily injury) as well as control the extent of pollution and contaminated land and waters. Through cooperation with local authorities, the reinsurer could work with the ceding company and local authorities to introduce incentives – perhaps in the form of tax breaks or subsidies – for adoption of preventive measures and identify environmentally sensitive processes and activities and proactively notify the local authorities. Risk could also be controlled through the imposition of heavy fines for repeat-offenders. Reinsurers could help design this carrot and stick policy as well as work with local authorities to produce insurance derivatives or alternative risk transfer solutions.

In China, rising labor costs and the country's efforts to improve manufacturing efficiency have also led to the increasing use of robotics and artificial intelligence in various manufacturing processes. The International Federation of Robotics recently reported that the total supply of industrial robots in China increased by 36 percent annually between 2008 and 2013.7 In Korea, robots have been installed with tracking, firing and voice recognition systems and used in the military. Increasing prevalence of autonomous machines capable of self-learning has already given rise to concerns about robot abuse and other possible ethical dilemmas. Scenarios where robots could be potentially liable for their actions are now being debated in legal circles. This trend could have significant implications for the insurance industry. Some product liability cases have emerged involving car manufacturers and other industrial producers using similar processes. Ultimately, this could lead to a new type of liability insurance product covering both the actions and performance of robots.


Intelligent underwriting needs to be supported with research and development and clients' needs clearly understood. Agriculture insurance has always been challenged by product delivery cost and access. Delivery is costly due to the remote and rural locations of risk. Within Asia Pacific, the smaller size of farms amplifies this expense. Innovation, in terms of satellite imagery and technology advances which are enabling cheaper distribution and greater access, is now starting to open up the marketplace. As a result, (re)insurers are better placed to play a role in agriculture (re)insurance through public-private partnerships and standalone products.8

Trade credit is another area of specialty insurance with significant growth prospects. A survey of corporate credit risk in China in the fourth quarter of 2013 revealed that eight out of 10 companies in China experienced overdue payments in 2013 and that the use of credit insurance had increased from 18 percent in 2012 to 24 percent in 2013.9 The fact that 90 percent of Chinese companies use credit sales in their domestic trade suggests plenty of market potential and a number of local insurers have shown that this business can be written profitably.10 While foreign direct investment in China in the first nine months of 2014 was slightly below the previous period, it still totalled US$87.4 billion while overseas direct investment increased by 22 percent to US$75 billion11 12, underlining the scope for political risk insurance. In Singapore, for example, banks, several of which use the City state as their regional headquarters, increasingly look to (re)insures as their partners as they use credit and political risk to balance their exposure.


At Aspen Re, we value the client consultation process extremely highly and calibrate our service offering not simply in terms of capacity but more specifically to ensure we deliver real value for our clients. We look to provide support across multiple products and seek to be much more than a transactional underwriter by helping with product development and sharing ideas from other markets around the world. By engaging deeply with our cedants on risk management issues and solutions at many levels, we can help them better identify and understand risk through our extensive underwriting, actuarial and claims expertise.

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  1. Asian Development Bank, Asian Economic Integration Monitor (April 2014)
  2. EM DAT – The International Disaster Database, Top 10 most important flood disasters for the period 1900-2014
  3. Asian Development Bank, Investing in Resilience: Ensuring a Disaster-Resistant Future (January 2013)
  4. Aspen Opinion, Tsunami Risk: The Coastal Region of the China Seas (October 2014)
  5. Aspen Opinion, Stress State in Japan Two Years On (July 2013)
  6. China Insurance Regulatory Commission, Guiding Opinions on Carry Out the Pilot Program on Compulsory Environmental Pollution Liability Insurance (February 2013)
  7. International Federation of Robotics, Industrial Robot Statistics (2014)
  8. Aspen Opinion, Food for Thought (October 2014)
  9. Coface, China sees highest level of corporate overdue payments since 2010 (11 March 2014)
  10. Ibid
  11. Reuters, China September FDI recovers on month but still down 1.4 percent for the year (16 October 2014)
  12. The Australian Business Review, China overseas investment almost doubles (17 October 2014)

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The above article/opinion reflects the opinion of the author and does not necessarily represent Aspen's views. The article reflects the opinion of the author at the time it was written taking into account market, regulatory and other conditions at the time of writing which may change over time. Aspen does not undertake a duty to update these articles.