Q&A: Peak Re’s Clarence Wong on claims’ inflation and cyber risk
January 6 2022 by Karen Lai
InsuranceAsia News (IAN) asked Clarence Wong, chief economist at Peak Re, about some of his key market concerns heading into the new year.
Hong Kong-based Wong spoke about how rising inflation could impact the cost of claims, the gradual understanding of cyber risks and which Asian economies could recover fastest this year from the pandemic.
IAN: What are the most significant risk factors that you see in 2022 for Asian markets?
Wong: One of the key risks in 2022 is higher inflation and interest rates. Now that we are seeing more and more central banks hiking interest rates globally and in Asia, the trend of low interest rate and low inflation is probably coming to an end.
For a lot of the insurance companies, they have to think through what are the implications of higher inflation and interest rates, as the effect will permeate through the whole value chain, including liabilities, assets, equity, and so on. And the impacts really depend on the individual company’s own business mix, and the local regulations.
Business lines in which premiums and claims are more directly linked with wages might feel a bigger impact, because it is expected that wage increases will be more permanent and entrenched alongside higher inflation. As a result, some business lines such as workers’ compensation or health insurance will see more pressure on claims compared to motor or property lines.
Apart from inflation and interest rates, I think we also need to pay attention to a number of factors that have been systematically affecting the risk landscape, including climate change, cyber risks and the rise of cryptocurrencies.
IAN: You mentioned cyber security and cryptocurrencies — should there be more new products covering these risks?
Wong: The insurability of new risks will likely to continue to improve over time. At the very beginning, the industry believed that it is almost impossible to insure against cyber risk because of the risk is systemic and we don’t know what the accumulation of risk will be.
But eventually the industry has moved on to offer different cyber policies against, for example, litigations or loss of suppliers. Now, against the backdrop of the rising popularity of cryptocurrencies, some insurance companies are beginning to offer covers for the loss of electronic wallets.
I think the industry is not able to go in one step to insure the full spectrum of cyber risk, or other new emerging risks. It won’t be easy because the risk landscape is also not static but will keep changing. We are tackling this steadily.
IAN: Which part of the business do you see the most significant growth in 2022?
Wong: The global economic fundamentals are improving and we are seeing a solid recovery globally in 2021, though this has been uneven and at multi-speed. Some markets are lagging behind because of the low vaccination rates and other domestic constraints. We expect some of them will stage a stronger recovery in 2022, in particular those markets in South-East Asia such as the Philippines and Indonesia.
Assuming a steady normalisation of economic activities, I think we can expect a recovery in the services industry, including hospitality, catering and even the transportation sector. Because they have been depressed for so long, if vaccination continues to increase and Omicron is not a big disruption, we probably will see these sectors to go through a strong rebound.
IAN: Are there any regulatory themes the market needs to pay attention to in 2022?
Wong: I think we probably will see more actions on environmental, social and governance (ESG). The Bank of England has already asked insurance companies to do climate scenario analysis. This will probably become a standard practice for other jurisdictions alongside more stringent requirements on ESG disclosure in regulation reporting.
Although it may not happen in the next 12 months, regulators are looking into more ESG related disclosure and compliance by insurance companies going forward.
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