Succeeding across Asia's life and health insurance market

00:00:03:

00:00:16: Why looking at risk from a purely local perspective can limit growth in Asia?

00:00:21: How insurers can adapt their decision-making to stay competitive and what connects Asian markets that operate under incredibly diverse conditions across the region.

00:00:32: Welcome to Replay by Hannover Re.

00:00:34: I'm your host, Susanne Loomis and today we'll talk to Sören Kruse about the Asian life & health insurance market.

00:00:50: Sören, who's heading our life and health operations in southern and eastern Asia is joining us today.

00:00:56: Welcome Sören!

00:00:57: Hi Susanne

00:00:58: So you started your career at Hannover in twenty thirteen where you focused early on live-and-health markets in Asia.

00:01:04: You also spent some time in South Africa for Hannover Re and then you move to Malaysia and return to the Asian markets.

00:01:12: So, you've seen a region from different angles not just technically but working closely with clients across very different market.

00:01:21: Yeah it's exactly people in business cultures who differ most between these different regions.

00:01:27: Well, that's really good insight to have because Asia is home to sixty percent of the world population and its total life insurance premium volume has surpassed that off The Americas over the last ten years.

00:01:41: so from your vantage point what would you say is biggest misconception about Asian Insurance market?

00:01:48: For me, the biggest misconception always is that Asia is one market with one growth story.

00:01:55: It's really not.

00:01:56: it's a set of fundamentally different insurance realities because one could easily think asia has high-growth economies low insurance penetration so you have huge opportunity for insurers

00:02:08: and that's not the case.

00:02:09: Well I would say only half true.

00:02:11: So when You Look Into Markets like India Indonesia Vietnam?

00:02:15: That Story Absolutely Holds.

00:02:18: You find young populations, an expanding middle class rising incomes and a very low insurance penetration.

00:02:24: But when we shift our view to Japan Korea or Hong Kong you do see that opposite aging population's Very high penetration And there is really no easy growth left.

00:02:36: So one should not underestimate the diversity in Asia.

00:02:40: Yeah, absolutely.

00:02:41: And given how different these markets are do you still see common threads across the region?

00:02:48: So despite that diversity there a few powerful common themes across Asia.

00:02:53: so first The need for protection is rising everywhere whether You talk to young family in India or retirees In Japan.

00:03:02: There Is A growing Gap Between What People Need Financially and what Is Currently Covered.

00:03:09: I really see all markets being under pressure at the moment just from a very different angle.

00:03:14: So margins are getting tighter everywhere, you see medical inflation being on the rise especially in Southeast Asia.

00:03:21: and when you look into the developed markets aging and longevity our enormous societal challenges.

00:03:28: What else would you say?

00:03:30: Yeah, maybe the most unifying aspect that regulation and capital are tightening everywhere.

00:03:36: So that's a common reality across all Asian markets.

00:03:39: And all of that probably also creates a lot of pressure on how fast companies need to move.

00:03:46: Where does that need for speed show up?

00:03:48: Most.

00:03:49: It's something that fascinated me the most.

00:03:51: So when you look into product cycles, it really works different in Asia.

00:03:56: Most European markets optimize for product robustness so You really find products that are designed to last and you'll find them on the market For five years ten year sometimes even longer And it justifies a development time of one or two years right?

00:04:11: In most all the emerging markets in asia things are faster so speed and adaptability outrangs product longevity.

00:04:20: So it means that this first mover advantage really matters, especially if there is strong competitive pressure.

00:04:27: so products can be designed a little bit simpler.

00:04:30: we use modular variations but the development time is rarely longer than half-a year and the products on the market only for one or two years.

00:04:38: Wow!

00:04:38: Is that the fastest?

00:04:40: Yeah, recently there are markets that are even faster than this.

00:04:43: So look into China or Vietnam or Thailand where your products sometimes in the market for a few months only less then half year and we develop them within let's say one month.

00:04:56: so you don't find traditional marketing campaigns.

00:05:00: The product itself is the campaign!

00:05:03: We really optimize for seasonal sales and platform partnerships.

00:05:08: That is quite a contrast.

00:05:09: And how would you describe the differences between the markets in Asia?

00:05:13: We talked about that already, so I'd really split Asia into these two worlds.

00:05:18: You find emerging markets – Indonesia, Vietnam and India where this challenge is really about scale and access to insurance.

00:05:27: You have untapped customer segments, lots of innovation in terms of distribution.

00:05:31: So bank assurance and digital channels has been on the rise recently where premiums are payable via mobile wallets And it allows simple micro-life transactions especially rural or low income areas.

00:05:44: But with that huge potential well there's a lot of competitive pressure that kicks In.

00:05:48: so emerging Asia is under pressure to grow sustainably.

00:05:52: Developed Asia On The Other Hand Is Under Pressure To Stay Profitable.

00:05:57: So these developed markets as Japan or Hong Kong, or South Korea stagnated over the last couple of years.

00:06:04: And with a highest life insurance penetration in the world The focus shifted to product innovations and increasing the value per customer.

00:06:12: I personally still think that there is some growth potential left Especially by serving customers segments That were previously considered uninsurable For example due health reasons.

00:06:23: And one area where the pressure to say profitable becomes very tangible is health, especially with rising medical costs.

00:06:33: To make that a little more concrete – Where does this hit insurance most?

00:06:38: Medical inflation is probably THE MOST immediate and visible pressure point across the region A true challenge for long-term sustainability.

00:06:47: Let's look into the drivers.

00:06:49: First, you really see this strong increase in utilization and cost across many markets.

00:06:55: so health care access is improving more advanced treatments are becoming available And that's great on one side but it also means that claims costs are rising significantly.

00:07:06: Yeah!

00:07:06: What about changes in premium?

00:07:08: We see this growing mismatch between pricing of products just a reality.

00:07:14: So products were designed at very different cost environment.

00:07:17: premium increases, struggle to keep up with inflation and the tight competition makes repricing really challenging.

00:07:25: Is there anything else?

00:07:27: I would also say that it really exposes a bit of weakness in product design itself.

00:07:32: so many products were designed very rich or open-ended sometimes quite limited cost control and guaranteed renewability.

00:07:41: In this overall environment medical inflation challenges sustainability on an entire product line.

00:07:47: And looking beyond cost pressure, and you mentioned this earlier.

00:07:51: There's the demographic side of it.

00:07:53: How does that affect insurance?

00:07:55: Yeah Let's look more deeply into Japan South Korea Hong Kong but also parts of China these days where populations are aging faster than anywhere else in The world.

00:08:06: Japan is the worlds oldest nation with about thirty percent Of its population aged sixty five and above.

00:08:13: I mean, just for comparison that is nearly twice as much in the US.

00:08:17: So the burden on public pension schemes and medical systems is immense resulting in retirement savings and health coverage gaps.

00:08:27: And how do insurers react then?

00:08:29: Yeah so insurers are trying to move into areas like private annuities supplemental health and long-term care.

00:08:35: So, for example in Japan medical riders and critical illness policies cater now to a much older clientele.

00:08:43: Similarly in South Korea expanding offerings of the elderly is topic at that moment and policies cover dementia care.

00:08:51: The challenge though how do you stay profitable?

00:08:54: In such an environment when we cover an old higher risk population all these demographic dynamics So the aging, protection gaps product affordability ultimately translate into one key question for insurers.

00:09:08: How much risk can you actually carry and at what cost?

00:09:13: Yeah which brings us directly to the role of capital and regulation.

00:09:17: Capital requirements are tightening globally And when you look at Asia what feels different compared to other markets?

00:09:24: let's say Europe

00:09:26: I would say the most fundamental difference is fragmentation.

00:09:30: so in Europe you have solvency, too.

00:09:32: It created a single harmonized framework.

00:09:35: in Asia you will deal with multiple regulators different versions of risk-based capital regimes Different interpretations of IFR seventeen.

00:09:43: so insurers who are operating regionally Are effectively managing multiple capital and accounting systems at the same time.

00:09:51: And there

00:09:52: was also timing issues right?

00:09:53: Yeah your rights Susanne.

00:09:54: So in several Asian markets I for seventeen and new capital regimes were introduced at the same time or within a short timeframe, like in Korea or Hong Kong.

00:10:05: So what makes Asian markets unique is not necessarily the rules themselves but the fact that multinational insurers are dealing with fragmented regimes.

00:10:14: simultaneous transitions Yeah.

00:10:19: So where do re-insurers then fit into all of this?

00:10:23: That's exactly why the role of reinsurance has evolved quite significantly, so it is not necessarily longer just about pure transfer risk but increasingly supporting clients in managing volatility capital and growth at that same time as capital management often in Asia determines whether you can grow.

00:10:46: And what does that support look like?

00:10:49: You mentioned speed earlier.

00:10:51: When a client calls, What happens during the next couple of

00:10:54: days?".

00:10:55: Yeah so I really want to be fast here!

00:10:57: So on that very first day we ask ourselves is there any particular reason why should not go

00:11:03: ahead?!

00:11:04: So i really don't wanna waste anybody's time and hours in all our clients...so if theres a particular obstacle were telling clients upfront.

00:11:12: But if not, we sit together with clients immediately to work with them on a solution and solve their problem together.

00:11:18: So that's very iterative process.

00:11:20: it goes back-and forth so I don't believe there is this one single solution for the problem.

00:11:26: There are different options, different tradeoffs And i really enjoy this interaction as creates alignment along the way.

00:11:34: What happens next?

00:11:36: Well within week Clients should not just get a response from our side, they should have very clear sense of direction.

00:11:43: Potentially an initial solution on the table but that only works with our very strong empowerment approach

00:11:50: Absolutely.

00:11:50: and it comes down to teams making decisions locally.

00:11:54: And what difference does this make when you compare them?

00:11:58: Yes I always tell clients if you talk to a client manager at Hannover Re you talk to decision maker.

00:12:06: So they don't have to come back to a large team or refer decisions, committees and hubs.

00:12:11: The person has the commercial authority to agree with you on reinsurance solutions so that it surely makes things faster.

00:12:19: And I'm also convinced people directly in the market with clients understand actual needs & pain points much better than any centralized function would.

00:12:29: What else is important for your cultural side when working with customers?

00:12:34: Yes, so we spoke about this empowerment approach already.

00:12:37: So let's talk about our no politics approach

00:12:40: okay?

00:12:40: It means that everyone at Hannover Re is working for the good of Hannover Re and not for any personal advantage.

00:12:49: it also means That all of our internal processes are designed around finding a solution For The Client as fast and pragmatically As possible.

00:12:59: Okay, so help us understand this a little bit better.

00:13:01: What is the no politics approach look like in practice?

00:13:05: Yeah So it for example means that traditionally we measured reinsurance contract by contract.

00:13:12: each agreement is assessed on its own performance.

00:13:15: But now with our clients We really take a drastically different approach.

00:13:19: instead of looking at all of these individual contracts in isolation we look at the relationship as a whole not only across all business segments, but also across all markets in the world.

00:13:31: What do you mean by that?

00:13:33: So let's take high net worth of businesses in Asia as a really good example.

00:13:37: many insurers here need very high coverage limits and capacities for this type of business.

00:13:44: if you would look into this business very locally it can appear very volatile.

00:13:48: so by taking global view we can balance their risk with business decline places for example, in other regions.

00:13:56: And that allows us to offer much higher capacities.

00:14:16: Yeah, for me the one really exciting aspect about it is that you find very few regions where the insurance industry is putting new ideas into practice at scale.

00:14:27: In many markets innovations are happening in pilots and Asia often happens across millions of customers almost immediately.

00:14:35: Wow!

00:14:35: And how does show up?

00:14:37: Let's say distribution?

00:14:38: You saw when I think about new product innovations, insurers are embedding such products directly into digital ecosystems like mobile wallets or super apps.

00:14:48: So instead of long sales cycles and slowly scaling up these portfolios they can test new propositions with real customers almost immediately.

00:14:58: And what about underwriting?

00:15:00: Yeah, I also see in general a much greater willingness to experiment with simplified underwriting predictive Underwriting user of alternative data.

00:15:09: So it allows us to continuously adjust and improve models In real time so you can test new ideas on A very large scale And within the very short timeframe To figure out is that working or not?

00:15:22: yeah That does sound really interesting.

00:15:24: Where do you see things going next?

00:15:27: I'm truly excited about the region because overall despite all the differences between the markets.

00:15:33: The unifying theme across Asia is this trajectory of change even if growth rates have moderated recently, the fundamentals so growing income an urgent need for protection and a tech-enabled population Ensure that there are plenty opportunities ahead.

00:15:50: So if you want to understand where our industry's heading?

00:15:53: Asia is probably one of the most interesting places to watch right now.

00:15:58: Thank you so much, Sören!

00:15:59: That was a really helpful perspective.

00:16:01: So

00:16:03: today we talked about why Asia is not one single insurance market but a region of fundamentally different realities and what still connects them?

00:16:13: We looked at what pressures affect products and sustainability –and discussed how it takes successfully operate in this environment.

00:16:24: We hope you found this conversation helpful and make sure to subscribe for more episodes, leave us a

00:16:59: review.