Report reveals impact of inflation on ASEAN insurers

Inflation caused challenges for ASEAN insurers on the underwriting and investment side, and also contributed to a tightening of reinsurance capacity, but most were prepared for inflation, according to this year’s ASEAN Insurance Pulse, published by Malaysian Re. Inflation did not affect all ASEAN insurers equally across the ASEAN markets, the report said. It varied broadly with Vietnam and Thailand at the lower end, with rates of 3.2% and 6.1% respectively, and Laos and Myanmar at the upper end, with 23% and 16.2%, all for 2022 according to the IMF. The report noted that insurers were affected differently according to their business model, with those with a high share of personal lines likely to be more impacted than those focused on commercial lines or in reinsurance. “We had anticipated the impact of inflation on claims on our books in 2022,” said Ahmad Noor Azhari Abdul Manaf, president & chief executive officer of Malaysian Re. “The large losses from the Eastern Australian floods in 2021 had served as an eye-opener for the impact of inflation on claims payments, as we could see its effects on the cost for replacement materials as well as triggering a shortage in construction workers and thus causing further costs.” The report said inflation did not catch the region’s insurers off guard. “It had already started to rebound before the end of the pandemic, and in some ASEAN markets had been part of their reality for quite some time. In addition, insurers had risk management measures in place to stress-test the impact of inflation on their book and reserves. However, a major concern was with policyholders, namely consumers, who often underestimate the risk of underinsurance,” it said. Insurers reacted with a mix of measures to combat the impact of inflation on their underwriting portfolio, the report noted. “Price increases were the most frequently mentioned feature, affecting foremost motor and property – unless tariffed. Tight market conditions were reflected in a hardening of terms and conditions – partly due to the developments in reinsurance too. Insurers demanded that clients disclose how they manage their risk and asked for an updated valuation of assets to prevent underinsurance and adjust sums-insured,” it said. The report added: “Furthermore, insurers pruned their portfolio and reallocated capacity, often shifting from severity to frequency risks to reduce the amount of reinsurance cover needed. The quality of the account was a dominant theme, with insurers systematically screening their portfolio, increasing deductibles to force clients to better understand their own risks. Ultimately, many shed risks that they felt were not meeting their requirements.” Motor, property and medical insurance were the lines most affected. According to some ASEAN insurers, prices for motor spare parts rose due to a combination of inflation and higher import costs by as much as 30% to 40% in some markets. Similarly, construction costs were up by 20% to 30%. In medical insurance, insurers saw a continuation of the double-digit inflation that markets had already witnessed for some time.

Report reveals impact of inflation on ASEAN insurers

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