Idie Si, Canopius

Asian wealth is the catalyst for rising Lloyd’s A&H capacity

Idie Si, Canopius

August 19 2019

With strong GDP growth in Asia Pacific (APAC) as US and European economies are slowing, and with 60% of the world’s population residing there, Lloyd’s is positioning itself to capitalise on the region’s huge potential for growth.

Sustained economic development continues to propel the rise of the middle classes, particularly in China, India and Indonesia. A Bain & Company report this year predicted that by 2023 average household wealth in Asia will surpass that of North America. Yet with insurance penetration at less than 5%, compared with the US and UK at around 10%, there is a big gap, which Lloyd’s intends to fill.

Asia Pacific is rife with opportunity for skilled underwriters backed by Lloyd’s capacity. This year Canopius established its Australia & Pacific office in Sydney, hiring a team of six people and others in Singapore to target a combination of SME business via coverholders as well as wholesale direct and facultative.

Accident and health (A&H) is a huge area of opportunity. With low insurance penetration and underinsurance, sums insured are very low compared with more developed economies, where individuals are commonly insured for five to seven times their salary.

Other related factors are further fuelling potential A&H growth in APAC. Capacity from Lloyd’s is being deployed to assist local cedants that are selling increased sums-insured limits in response to rising salaries. Many realise they are retaining too much and, with heightening accumulation risk, many are ceding that to reinsurers.

Lloyd’s managing agents are working with cedants and coverholders to devise solutions to address such issues through facultative and /or treaty reinsurance arrangements. Partnering with local insurers is helping Lloyd’s managing agents to reach even further into the region, extending their scope beyond local Lloyd’s licences, which are limited in some areas.

In Australia and New Zealand, technological innovation and entrepreneurialism are at an all-time high. Insurtechs have caused disruption for some primary markets, propelling increased customer expectations. Coverholders have also invested significantly in technology to achieve greater efficiency, allowing them to offer a broader range of niche products that are easily purchased. The huge growth opportunities resulting from underinsurance, which is an issue in both countries, is inspiring these efforts.

Personal wealth
Increasing personal wealth across Asia Pacific is also fuelling demand for personal accident (PA) cover. It is further powering a booming entertainment industry and demand for celebrity PA has increased over the past five years. However, it is only in the last 12 months, with celebrity earnings, particularly in China, now on a par with Hollywood, that we have seen high-limit requests, e.g. sums insured of up to US$100 million, from film studios or the stars themselves.

As the region follows a western arc in its cultural development, sport is also becoming a huge industry. For example, footballers, in addition to lucrative salaries, are commanding significant additional revenues from product endorsement and advertising deals. The value of clubs is also rising and with that a realisation of the need to protect their assets and mitigate the risk of revenue loss through injury. This is generating a lot of interest, enquiries and opportunity for personal accident underwriters.

Australia and New Zealand have recently seen a significant shift in risk appetite among personal accident insurers, particularly among non-domestic carriers. Several have retrenched and others are likely to follow, mostly due to issues with group PA policies based around enterprise bargaining agreements, which are trade-union driven and mandate the inclusion of certain conditions.

Local insurers that complied were undercut by others that didn’t by as much as 50%. Their
failure to grasp the complexities of these agreements led to significant losses – while specialist underwriters in London have a keen appreciation of the intricacies. The perception that this area is unprofitable is incorrect as specialists can write profitably by setting rates that truly reflect the totality of the risk.

With seven syndicates now writing A&H from Lloyd’s Singapore, a total of US$128 million of capacity is on offer; more than double that available in 2014. Three additional syndicates have established operations and hired specialist underwriters this year alone, further signalling Lloyd’s desire to ensure Asia-Pacific’s rise as it grows in significance on the world stage.

This article was written by Idie Si, senior underwriter – accident and health, Canopius, and chair of the Lloyd’s A&H Market Development Group in Singapore and Suzanne White, accident and health underwriter, Canopius – who is based in Sydney.

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