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The government has introduced policies and a new capital regime to help the sector tackle these challenges, said acting financial secretary Michael Wong inaugurating EAIC 2024.
While Hong Kong remains one of the most open and dynamic insurance hubs of the world as evident by the high penetration rate, emerging risks from climate change, economic uncertainties and new technology are presenting as much challenges as opportunities to practitioners, said acting financial secretary Michael Wong Wai-lun.
The government has introduced a number of policies and infrastructure to help the sector tackle these headwinds, as it remains committed to working with the industry to bolster the sector’s resiliency, Wong said.
Wong was speaking at the inauguration ceremony of the East Asian Insurance Congress 2024 in Hong Kong. The 30th edition of the biennial conference, and the third to be held the city, has attracted over 1,000 delegates from 31 countries who will be participating in the four-day conference that will run until September 27. It is the first in-person EAIC conference since the Covid-19 pandemic.
With the highest insurance penetration rate in the world at 70.2%, the city has attracted a diverse pool of insurers, said Wong.
“While Hong Kong remains the world’s most open and dynamic insurance sectors, we must also be prepared for challenges ahead, given fast evolving landscape of risk, opportunities, and technology,” he said.
To address the challenge from climate change, the Hong Kong government has been proactively introducing policy incentives to promote the city as a hub for insurance-linked securities (ILS), such as cat bonds.
“The RBC regime would strengthen resilience of the sector, and help the industry to effectively enhance the protection for policyholder.”
Michael Wong, acting financial secretary
To entice issuers, an ILS grant scheme was introduced in the city’s 2021-22 financial budget, he said. The scheme covers up to 100% of the upfront issuance costs and is subject to a cap of HK$12 million. That scheme has been extended until May 2025. The regulatory regime for ILS has also been streamlined.
The sector is also challenged by economic uncertainty, he said, adding “there is a need for insurers to better handle risks and as resilient as possible”.
Since July this year Hong Kong has implemented the new risk-based capital (RBC) regime, which provides a more risk-sensitive assessment for capital adequacy.
“This risk-based regime would strengthen resilience of the sector, and help the industry to effectively enhance the protection for policyholders,” he said.
Tech innovation such as artificial intelligence and digital platforms are drastically changing the way that insurers perform their underwriting, process claims, and deliver their services, he said.
With insurtech, many insurers are proactively seeking to collaborate with fintech firms to develop new products and tools to serve the needs of different parts of the insurance value chain.
“Insurtech will have a bright future. The government is committed to facilitating further development [on this front],” he said, noting the over 1,000 fintech companies and start-ups in the city, some of which specialise in insurtech.
The SAR is well-placed to be a hub for captives, especially by mainland enterprises to holistically monitor their overseas project risks and scale up their intra-group risk management capacity, says the regulator’s CEO.
With a mature and developed market, geographical proximity and cultural affinity, Hong Kong is the best place for mainland residents to satisfy their financial management and personal protection needs, according to Clement Cheung, the chief executive of the Hong Kong Insurance Authority.
The city also has the essential ingredients of a successful insurance-linked securities (ILS) domicile: world-class financial infrastructure, vibrant capital market, an impressive array of professional service providers, strong governmental support and unique connectivity with the Greater Bay Area (GBA).
Building on this solid foundation, the IA is stepping up efforts in identifying potential sponsors, engaging relevant authorities in the mainland, widening the range of product structures, enriching the risk types and promoting the awareness of institutional investors in Asia, Cheung said.
“We are already seeing some early successes – the five ILS issuances that took place here are led by mainland reinsurer and direct insurer, local reinsurer and the World Bank. Efforts to forge a viable ecosystem will continue to intensify,” he told InsuranceAsia News.
GBA’s risk management centre
Apart from establishing after-sales service centres in the GBA to render comprehensive support for those holding insurance policies acquired in Hong Kong, the IA is also examining feasible ways to address the challenges posed by the city’s demographic changes.
“To achieve this, we are looking at tailored insurance products that enable Hong Kong citizens to plan for their retirement at quality and affordable residential care facilities located in the wider confines of the GBA,” Cheung said.
The nine mainland cities in the GBA have an average insurance penetration rate of only 5.14% and an insurance density of around RMB7,200 (17.2% and HK$68,400 in Hong Kong respectively), there is huge potential for stable and sustained growth of new business derived from visitors from these cities.
“To bridge protection gaps and deepen financial inclusion, the IA is coordinating industry practitioners and the academia to improve data quality and availability, upgrade risk modelling sophistication and refine climate-related policies and disclosure standards.”
Clement Cheung, HKIA
Narrowing protection gap
Insurers play a crucial role in strengthening community resilience by shouldering losses and speeding up reconstruction.
The rising frequency and severity of climate-related events are driving up claims and the level of premiums, threatening to make insurance coverage less accessible.
“To bridge protection gaps and deepen financial inclusion, the IA is coordinating industry practitioners and the academia to improve data quality and availability, upgrade risk modelling sophistication and refine climate-related policies and disclosure standards,” Cheung noted.
With the wellbeing of the GBA in mind, the IA is collaborating with insurers and research institutions to explore innovative solutions (such as parametric products for flooding), with a view to bolstering our risk management capacity.
“Insurers are major institutional investors that can perform an impactful role in directing funds to green projects and transition financing,” the regulator said, adding that the IA “will work with other financial regulators participating in the Green and Sustainable Finance Cross-Agency Steering Group to facilitate this through viable means”.
Captives pivotal to Belt & Road
Hong Kong also is well-placed to be a hub in developing the captive market, especially by mainland enterprises to holistically monitor their overseas project risks and scale up their intra-group risk management capacity.
“Captives can also play a pivotal role in supporting the Belt & Road projects, particularly in energy transition away from fossil fuels, risk management related to other fast-growing sectors such as electric vehicles that would benefit from sustainable development,” according to Cheung.
Geopolitical tensions have aggravated uncertainties that hinder cross-border trade and investment, preventing many developing economies from uplifting the living standards of their people. The use of captives is effective in encouraging corporations to venture into new markets or expand their footprint.
The tax concessions for captives and the expanded scope of insurable risks by captives introduced in 2013 and 2020 respectively have put Hong Kong on par with other leading captive domiciles, Cheung claimed.
A strategy and an action plan are now being formulated to guide future efforts and reinforce our value propositions.
The IA is reaching out to local corporations either with a captive operating elsewhere or has the potential to benefit from a captive to better understand their needs and circumstances. Some of them are likely to set up captives in Hong Kong, he added.
Teck Siong Ng, cyber underwriter at Beazley, discusses the regional risk landscape and challenges presented by the lack of structured frameworks and emerging technologies like AI.
Across the Asia Pacific region, cyber preparedness is fragmented, from the maturity levels of the cyber market to the overall perception of the cyber risk, according to Teck Siong Ng, underwriter, cyber risks Asia at Beazley.
However, there is a shift in the mid-market, with the development of stringent privacy laws and cybersecurity regulations which is gradually reshaping many organisations’ relationships with cyber insurance in markets such as Hong Kong, Singapore, and Malaysia.
There is certainly increased risk appetite in Asia Pacific, which is indicative of the growing maturity of the cyber market and the industry’s confidence in the risk level, Ng said.
“The market will find its equilibrium in the long term and there will likely be a short-term softening of rates,” he said.
“The threats like ransomware and AI-enhanced attacks continue to disproportionately affect organisations that have not adequately invested in cyber security measures,” Ng said.
“While it may be perceived that some industries or business sizes are more exposed to this threat than others, the trend suggests that cybercriminals are targeting those companies which they consider ‘low-hanging fruit’, those with minimal security controls,” he explained.
“Risk selection will be a key component in profitability. More mature organisations recognise that the cyber landscape is dynamic and are therefore not always looking for the lowest rates for cyber solutions. They want a full spectrum offering with a dedicated resource on the ground in the region,” he added.
Overall, while companies may excel in prevention and detection, their incident response strategies often lack robustness.
“This shortfall can lead to amplified losses, encompassing data restoration and business infrastructure recovery, not to mention the reputational damage that can ensue. It’s clear that while cyber hygiene is improving, there is a pressing need for investment in incident response capabilities as this is just as critical as the preventative measures in place,” Ng said.
“We are seeing a shift in the mid-market, with the development of stringent privacy laws and cybersecurity regulations which is gradually reshaping many organisations’ relationships with cyber insurance in markets such as Hong Kong, Singapore, and Malaysia.”
Teck Siong Ng, Beazley
There is a need for the industry to respond to the accumulation risks and prepare for systemic events like cyber war or outage of critical infrastructure.
Ng explained: “We are living in a world of accelerating cyber threats. While we don’t need to be fearful of this, we must be prepared, evolving our approach and offering and keeping clients ahead of the game.”
A comprehensive cyber proposition is a way to address loss prevention and provide ease of access to cybersecurity experts, and a holistic, full-spectrum strategy can help ensure that clients have a robust ecosystem of cybersecurity that pre-empts emerging cyber threats, responds to them and adapts to new risks in real-time, according to Ng.
The rise of generative AI is a key risk consideration for insurers as it is increasingly used for launching sophisticated cyber-attacks.
Another important challenge for clients in Asia is cyber risk quantification, which is often hindered by a lack of structured frameworks.
“This is an area where harnessing global expertise and working closely with the growing cyber broking community in the region comes in, providing invaluable insights, helping to bridge the gap in risk perception and insurance buying behaviour that currently exists between Asia and more mature markets,” Ng said.
(Re)insurers in the region are increasingly focusing on understanding and analysing risk exposures and are more willing to invest in data collection, says Guy Carpenter’s Kitty Bao.
As the world grapples with the growing severity and frequency of natural catastrophes, the Greater China region has been among the worst affected in the recent years.
Natural catastrophes that affected China in the first six months this year including flooding, earthquakes, typhoons, wind and hail, freezing, forest and grassland fires, and sandstorms, which have caused a direct economic loss of CNY93 billion (US$13 billion) to the country.
And in the past two months, the region has seen two windstorms – typhoons Yagi and Bebinca – cause large-scale damages across Hainan, Guangdong and Shanghai.
While the (re)insurance market has been bearing the brunt of the increasing cat losses, they are “increasingly aware of catastrophe risk management, focusing on understanding and analysing the risk exposures, they are more willing to invest in data collection”, according to Kitty Bao, managing director, head of analytics & advisory, Asia Pacific, Guy Carpenter.
Beyond traditional perils like wind and earthquakes, floods are gaining attention, especially following recent events in China.
“From the direct side, insurers are incorporating natural perils as default coverage in property and motor policies, along with developing innovative products,” Bao said.
There has also been an increase in the formation of government schemes to cover casualty and household property loss.
“We have observed a gradual increase in the purchase of catastrophe protection, albeit limited by budgetary constraints. As a result, some companies have shifted up their programs accordingly.”
Kitty Bao, Guy Carpenter
“We have observed a gradual increase in the purchase of catastrophe protection, albeit limited by budgetary constraints. As a result, some companies have shifted up their programs accordingly.”
“While traditional catastrophe excess of loss cover remains prevalent, insurers are also exploring alternative solutions, such as multi-year covers and catastrophe bonds,” according to Bao.
To diversify catastrophe risks, insurers are seeking overseas reinsurance support and tapping into the insurance-linked securities (ILS) market and catastrophe bonds.
While reinsurance capacity is abundant, rate adequacy issues hinder efforts to deploy it effectively, noted Bao.
“Insurance companies rarely align catastrophe loading in their direct product pricing with reinsurance rates, leading to potential underpricing of risks, especially when there is a clean loss history. Consequently, reinsurance costs are often seen as an increasing expense in primary pricing,” she added.
In a competitive market, it takes time for insurers to include catastrophe loading systematically in their pricing models. Instead, companies implement other underwriting and claims management measures to control catastrophe exposures, complicating reinsurers’ ability to quantify risk, Bao said.
Energy transition
Given the focus on the region’s transition to a low-carbon economy, there is much opportunity for the (re)insurance industry to help the region achieve its ambitious targets.
“China’s significant role as a global producer of wind and solar energy has prompted state-owned insurers to provide insurance capacity in support of this transition. As a result, there is an increasing demand for overseas reinsurance capacity to manage risks from the expanding portfolio, with tailored reinsurance arrangements being sought to maximise support,” Bao said.
New energy insurance is rapidly developing in both personal and commercial sectors, particularly in electric vehicles (EVs) and renewable energy. The surge in the EV market has led to increased demand for EV insurance, but high costs in Hong Kong and China hinder adoption. To address this, the Chinese government has introduced new rating guidelines for more flexible EV insurance pricing based on risk levels.
Gen Re’s Orchis Li sees gender equality as key market driver as the reinsurer’s GM gives her perspective on female leadership and representation in the Hong Kong market.
InsuranceAsia News caught up with Orchis Li, general manager, Gen Re, and Governing Committee member of the Hong Kong Federation of Insurers (HKFI) , to discuss how the insurance industry can be more inclusive and foster female leadership.
What challenges did you face when advancing your career and how did you overcome them? Can you share examples of successful women leaders who serve as role models in the insurance industry?
Women in the professional sphere often encounter a myriad of challenges as they advance in their careers. For me, the most challenging issue is motherhood. In this respect, support networks, including the immediate and extended family, are very important.
I recall when my girls were young, I made a conscious decision to leave the office around 7 pm every day to spend time with them, tuck them into bed around 9 pm, and then attend to any unfinished work. This was before working from home became common, and it required an understanding boss and team to make it work. The number of hours and dedication I put into work is no less than my peers, but the timing certainly differs.
The insurance sector boasts many exemplary women leaders. At the HKFI, we’re proud to have strong representation, with Selina Lau as our CEO and my fellow Governing Committee members Karen Lee, Sally Wan and Winnie Wong.
We are fortunate to have numerous role models who embody determination, expertise, and leadership — key traits for breaking through career advancement barriers. I am confident that the sector remains committed to fostering more female leadership, thereby enriching our professional community with greater inclusivity and diversity.
How can insurers ensure more female representation in leadership in Asia?
An HKFI survey from January 2023 shows progress in gender equality within the insurance industry, with 21% of CEOs being female and nearly a third of respondents indicating that over half of C-suite positions are held by women. However, there’s still room for improvement.
Strategic government initiatives and policy reforms that encourage female participation in these sectors are crucial. Companies can support this by offering flexible work arrangements and adaptable hours for working mothers or primary caregivers, alongside enhanced childcare services.
Embracing a workplace that genuinely values diversity and inclusivity is key to women’s success. This involves not only welcoming but actively seeking diverse perspectives and integrating them into the company’s strategic planning and decision-making processes.
“Embracing a workplace that genuinely values diversity and inclusivity is key to women's success. This involves not only welcoming but actively seeking diverse perspectives and integrating them into the company's strategic planning and decision-making processes.”
Orchis Li, Gen Re
What advice would you give to a woman looking to advance her career in the insurance industry?
Be authentic, courageous and build trust! Technical expertise forms a solid foundation for success, yet developing resilience, adaptability, and leadership skills is equally essential. Keep learning, whether it’s through formal education or keeping abreast of industry trends. It’s the synergy of knowledge, networks, and confidence that propels your career forward.
In the current landscape, organisations are placing a higher emphasis on diversity in leadership, prompting more robust diversity initiatives. This environment offers women a platform to champion inclusive and equitable workplace cultures. Aligning with companies that prioritise gender diversity can be advantageous, as they often support career progression.
Proactivity is key in advancing one’s career. Seeking out opportunities, volunteering for challenging projects, and showing interest in leadership positions, coupled with a readiness to embrace calculated risks, can set the stage for success.
Can you give examples of how organisational culture can help employees shape leadership style?
A culture that values open communication and flat hierarchies may encourage a participative leadership style, where managers seek input from team members and make decisions collaboratively.
This can lead to a more democratic approach to management, fostering a sense of ownership and accountability.
If a company loves new ideas, leaders will likely inspire their teams to think big and push boundaries. This type of culture often leads to a more dynamic and adaptable management approach.
A company’s deeper values, like caring for society or personal growth, shape leaders as in such companies they might put their team’s needs first or act as mentors, helping everyone grow and succeed together.