Asian Insurers Expected to Boost Investments in IT

Strong economic growth in Asia is driving more than premiums for domestic insurers. Their information technology budgets for 2009 are also rising in an effort to remain well-equipped, add products, develop new channels, make process changes, respond to new regulations and maximize their market values.

According to financial research and consulting firm Celent, emerging markets in the Asia-Pacific region such as China and India are showing continuous economic growth, a high savings rate, large and aging populations, offsetting the negative effects generated by business shrinking in mature markets like Japan due to the global financial crisis in 2008.

Investment in technology infrastructure, technology agility, customer service, new business and distribution, data integration and management analytical tools, will be “key” information technology initiatives of Asian insurance chief investment officers in 2009, according to Celent.

Wenli Yuan, a Beijing-based senior analyst with Celent’s Asia Research Group, told BestWeek Asia/Pacific that Asian insurance companies use multiple distribution channels, including tied agent, bancassurance, telemarketing, agency firms or financial consulting firms, which still mainly depend on “traditional distribution channels.” But the coming year will see CIOs invest in “producer portals and direct marketing channels” to optimize customers service.

IT Budgets Rise

Yuan said the consulting firm’s recent survey, "Trends in Asian Insurance 2009: A Business and Technology Outlook Based on a Survey of Asian Insurance CIOs," found that an Asian insurer “spends approximately 2% of premiums on IT.”

In spite of the current economic gloom, insurers are forecasting “an increase of 4.9%” in their IT budgets for 2009, said Yuan. “This suggests a different role for the IT department than in the previous decade, as the role of technology is becoming more strategic and is seen as part of the solution to reducing costs in the business, rather than being a cost.”

The analyst also said that in a fast-growing market like China or India, insurers aggressively expand branches to new regions with the need to continually provide new services to producers and customers, while internal management requirements arise with business expenditures, making the continued requirement for IT infrastructure “obvious.”

Celent's survey found that “economic growth and an aging population” are important drivers of industry growth in the Asia-Pacific region. However, the growth of insurance will “slow down” due to the current financial crisis, as personal savings have declined and demand for insurance products has weakened.

Yuan said the Asia-Pacific region accounted for 21% of global insurance premium income in 2007, down from 23% in 2005, mainly because of a slowdown in the Japanese insurance market. She added that Japan is the world’s third-largest insurance market, South Korea is seventh and China is 10th.

Globally, life premiums account for 60% of total premiums, but Asia-Pacific life premiums account for 75% of the region's total, mainly due to the heavy focus on life insurance in Japan. According to the survey, about 78% of premiums are life premiums in Japan, while the country accounts for 50% of the Asia-Pacific market share.

For insurance density and insurance penetration, countries or regions like Japan, South Korea, Singapore, Hong Kong and Taiwan are “more mature, but their growth will be slow” relative to the rest of the region. Underdeveloped markets like China and India, are showing “aggressive growth,” said Celent.

On insurance distribution in the region, the consulting firm found that tied agency forces are the “largest” life insurance distribution channel, while bancassurance and direct marketing are “growing fast” in many countries.

For example, in Japan, bancassurance has taken up 51% of the annuities market. In China, bancassurance took over 30% market share in 2008, while in Hong Kong, bancassurance has taken up around 20% market share in the property/casualty sector and 30% in the life sector.

Celent said Asia-Pacific insurance business is expected to experience some changes, including changing product preference, with customers going back to basics with traditional protection insurance products and health protection products.

Other changes include shrinking demand for nonlife insurance; unfavorable insurer investment results that may lead to price increases for some products; insurers seeking effective ways to lower expense ratios and operating costs to remain profitable amid the global financial crisis; and more attention paid to risk management.

Celent also noted that mergers and acquisitions activities are “becoming increasingly popular” worldwide.

Asian Markets

According to Celent's survey, in Japan, there are 30 nonlife insurers, including 25 local and five joint ventures or foreign companies, and 42 life insurers including 29 local, 13 joint ventures or foreign insurers, with local insurers dominating the market. The market is “concentrated” with the top five life insurers controlling 55% of the market, while the top five nonlife insurers control 83% of business.

In China, there are 47 nonlife insurers, including 31 local and 16 foreign companies, and 56 life insurers, including 30 local and 26 joint ventures. It is also a “concentrated” market, with the top five nonlife and life insurers, respectively, accounting for 75.5% and 78.5% market share, while foreign insurers only account for 1.2% and 4.9% in the nonlife and life sectors, respectively.

In Hong Kong, the market is “very open and fragmented,” with 130 nonlife and 65 life insurers operating. The top five nonlife insurers and life insurers respectively account for 24.8% and 55.8% of market share.

In South Korea, with contributions from new sales channels such as bancassurance, telemarketing, home shopping networks and the innovative products that foreign insurers developed, the market share of foreign insurers grew from 8% in 2001 to 18.9% in 2006.

In India, there are 20 nonlife and 21 life insurers. With favorable policies introduced by domestic regulators, foreign insurers are encouraged to form joint ventures with local companies by taking up the maximum market share of 26% in joint ventures. State-owned Life Insurance Corporation of India still takes in 86% of total premiums.

On the nonlife side, the relevant business in India was nationalized in 1972 as the General Insurance Corporation of India, a holding company that included four major subsidiaries, which takes up 71% market share in premium income.

In Singapore, there are more than 50 nonlife insurers and 18 life insurers. The domestic nonlife insurance market has “moderate” market concentration, with the top five insurers accounting for 43% of the market in 2007, while the top five life insurers accounted for 77%.

(By Rebecca Ng, Hong Kong news editor: [email protected])