2017-2018
ANNUAL REPORT

Developments
in Asia

The liaison offices for Japan and
Asia promote and increase
recognition of The Geneva
Association in the region by
developing new relationships
with insurance companies,
governments, academia,
NGOs, regulators and
supervisors. The
offices also support
the Association’s
members in
the region.

Developments
in Asia

The liaison offices for Japan and
Asia promote and increase
recognition of The Geneva
Association in the region by
developing new relationships
with insurance companies,
governments, academia,
NGOs, regulators and
supervisors. The
offices also support
the Association’s
members in
the region.

Developments in Asia

The liaison offices for Japan and Asia promote and increase recognition of The Geneva Association in the region by developing new relationships with insurance companies, governments, academia, NGOs, regulators and supervisors. The offices also support the Association’s members in the region.

JAPAN

REGULATORY TRENDS

In December 2017, Japan’s Financial Services Agency (FSA) published the consultation ‘FSA Supervisory Approaches’—replacing checklists with engagements and solicited comments from stakeholders. Although the document covers all financial sectors, it has important implications for the Japanese insurance sector.

The key principle is to make supervisory approaches consistent with the ultimate goal of regulation which is to (i) enhance national welfare by contributing to the sustainable growth of the economy and national wealth; (ii) attain both financial stability and effective intermediation, ensure better consumer protection and services as well as market integrity and vigour; (iii) minimise market and government failures so as to further improve the functioning of markets; and (iv) shift from rule-based compliance to a balanced use of rules and principles.

Under these principles, supervisory approaches are expected to be transformed from backward–looking, element-by-element compliance checks, to substantive, forward-looking and holistic analysis and judgement.

The new approach is expected to energise the financial markets in Japan so that people can build the financial means to support longer life expectancy and make society more resilient to large-scale natural and man-made disasters.

DISRUPTION, INNOVATION/TECHNOLOGY AND CYBER

M&A Activity

Rakuten, an e-commerce firm in Japan, announced the acquisition of Asahi Fire Insurance, a small-sized Japanese insurer. As Rakuten had already purchased a life insurer in Japan, the news was not surprising. The announcement that earned more headlines was that Soft Bank (SB), a Japanese IT and communication giant, and Swiss Re initiated talks on SB buying an equity stake in Swiss Re.

Autonomous Cars

In 2016, the General Insurance Association of Japan (GIAJ) conducted a comprehensive study on the legal aspects of automobile insurance, covering issues such as liability of drivers, algorithm vendors and manufacturers for each level of autonomous driving technology embedded in cars. Following this report, during 2017 and into 2018 insurers have been carrying out their own surveys among drivers, policyholders and potential purchasers of cars in order to learn about their priorities in terms of car insurance.

Cyber Risk

The Ministry of Internal Affairs and Communications, which in Japan is responsible for ensuring that society is resilient to cyber risk, launched a new task force focusing on cyber security policy in the age of IoT and artificial intelligence. Task force members have proposed to discuss cyber risk disclosure and preparedness among public and private enterprises so that their stakeholders become aware of the nature of the risk. Given the relevance of the issue for insurance, experts from three member companies of The Geneva Association have joined the task force.

Blockchain, Robotics and Artificial Intelligence

A non-life insurance member of the Association announced a pilot project on cargo claims settlement using blockchain technology. Due to its global mobility, the cargo business is prone to incidents anywhere in the world, which means that claims handling can be complex and time-consuming. The benefits of using blockchain may prove to be advantageous. Moreover, robotics process automation has been applied by a life insurer to their claims settlement process and has made a significant improvement in efficiency. Some insurers are using artificial intelligence in their call centres to help their staff select the most appropriate answer to questions from policyholders and consumers.

LOW INTEREST RATES AND DEMOGRAPHICS

The Japanese Prime Minister, Shinzo Abe, reappointed Haruhiko Kuroda as governor of the Bank of Japan; this was interpreted as a signal that low interest rates will continue. Some economists are concerned about what they perceive as a lack of resolve to break away from the situation, especially because the government’s debt principal does not increase with low interest rates. However, younger generations see the current situation as unsustainable and are preparing for harder times, which is affecting consumption levels.

Amid this backdrop, the situation of life insurers has remained unchanged, with many of them suspending the selling of savings products and trying to focus instead on promoting medical insurance policies denominated in foreign currency. However, as levels of income of the corporate sector have increased, so has the dividend income in insurers’ investment portfolio.

Demographics

The FSA asked the Institute of Actuaries of Japan (IAJ) to review the standard mortality table. While the table is the basis for insurers to calculate statutory reserves in accordance with the Insurance Business Act, the revision of the table (expected to be completed in May 2018) will affect the pricing strategy of life insurers. In fact, some of them have already announced price reductions for some products.

Natural catastrophe risk and international cooperation

The hurricanes in the Atlantic and the earthquake in Mexico caused insured losses of approximately JPY 200 billion (USD 2 billion) net of reinsurance to Japanese member companies during 2017. However, the financial sustainability of affected insurers was confirmed by rating agencies and analysts.

Recently, the setting up of business continuity plans (BCP) has been a priority for Japanese corporations and municipal governments. A large insurance group has been providing advice and organising seminars to roll out BCPs involving various scenarios such as earthquake, tsunami, flood, fire, volcano eruption, and pandemic.

The GIAJ and Japanese insurers are promoting risk mitigation support to countries in the ASEAN region that are prone to many types of risks. In November 2017, the GIAJ and ASEAN Insurance Council reached a cooperation agreement covering all of ASEAN’s insurance associations.

ASIA (excluding Japan)

In line with the improvement in the global macroeconomic environment and financial markets, the insurance industry in Asia continues to grow steadily. The following developments will continue to shape the industry.

Digitisation and Cyber Risks

The increasing digitisation of the economy is likely to increase cyber risk exposure in a significant way in the years to come, driven by the IoT, artificial intelligence, robotics, drones and autonomous vehicles. China and India are leading the way in these and other developments whilst ASEAN countries are embracing cutting-edge technologies for their financial services sectors. Major players like Alibaba, Tencent, and Didi are already providing online insurance and investment services; and Tai Ping Life, a major life insurer, is pushing for a transformation of healthcare services where households, connected via an online platform, exchange under-utilised capacity of assets or human resources.

Ageing Population

In countries such as China, Singapore, Korea and Hong Kong this is an issue that is recognised as a major potential mid-term crisis. Life and health insurers are getting more capital and developing new products, for example modified annuities and long-term care, to offer wider coverage and create larger risk pools by reaching more elderly people under subsidised public programmes.

The insurance industry in markets across the region has also started to provide tailor-made coverage for people who have been diagnosed with diabetes and heart disease as these conditions become more prominent amongst the ageing population. This is just one example of how the insurance industry is adapting itself to the changing environment.

Protectionism

An increase in protectionism and regulation is likely to delay the implementation of the Insurance Capital Standard (ICS) across the region. In addition, regulators are challenged even more to regulate cyber risk exposures effectively, as non-insurance institutions provide cyber insurance disguised as warranties as well as services without the constraints borne by regulated insurance carriers. This situation is apparent in China, India, Korea and some of the South East Asian nations.

Natural Catastrophes and Urbanisation

In terms of NatCat losses, 2017 (and also the previous year) was good for Asia. Risk pools were created and expanded. However, the market continues to remain soft in Asia despite hurricanes Harvey, Irma and Maria and the increased demand for natural catastrophe coverage driven by greater urbanisation and economic integration.

Corporate and Regulatory Activities

The China Insurance Regulatory Commission seized control of Anbang Insurance Group and removed the company’s chairman. A working group has been formed to oversee the restructuring and ensure a smooth transition.

ZhongAn, a Chinese online insurer, launched an initial public offering in Hong Kong in September 2017, making it the first Insurtech public offering. The firm, although technically an insurer, was valued instead as a technology company and raised USD 1.5 billion.