Singapore: playing to its strengths

Singapore’s location at the southern tip of the Malacca Strait has meant it has long been the gateway for those from Europe looking to trade in southeast Asia. It has acted as a magnet for western insurers, reinsurers, and brokers, who set up their Asian headquarters there, and the island state has sought to exploit that by transforming itself into a regional insurance hub, including for niche lines. The economic fallout from the pandemic has hit Singapore hard, but it is looking to innovate to bounce back. Singapore has developed its insurance market by playing to its strengths, rather than by setting itself up as a rival to London or Bermuda, says Murray Wood, head of financial specialties, Asia at Aon’s commercial risk solutions unit. “Singapore has looked to address a gap in the geographic spread of global insurance markets in the fast growth economies in Asia. Being able to access insurance capacity that is headquartered in the region has been an integral part of the Singapore market’s growth, along with its access and distribution platforms.” Singapore’s thriving specialty insurance market focuses on the kind of entrepreneurial risks associated with doing business in fast-developing, high-growth Asian economies: casualty and liability, financial and credit, marine and construction, war and political violence. But the ‘triple shock’ that, according to the World Bank, the pandemic delivered to Asian countries – namely the virus itself, the economic impact of worldwide lockdowns and the global recession they triggered – also hit specialty lines hard. In its Q2 2021 market report, Aon says the Singapore specialty market faces the same challenges as other global centres, with capacity being withdrawn, rates pushed up, and terms and conditions tightened. In casualty and liability lines, rates have risen by up to 10% across the board, with blanket communicable disease exclusions being applied, it says. The picture is worse in financial lines, with prices up as much as 30%, along with higher deductibles; the subscription market has broken down with every market insisting on applying its terms, rather than fol-lowing the lead. “Insurers are increasing premiums and reducing their capacity as they assess the long-term viability and sustainability of these products,” Aon states. Singapore was among the Asian economies worst hit by Covid-19. It contracted by 5.4% in 2020 and although its economy is expected to rebound in 2021, its forecast growth of between 4% and 6%, according to its Ministry of Trade and Industry, isn’t as fast as other ASEAN countries. Its neighbour Malaysia is set to grow by more than 7%, while Vietnam’s economy will expand by nearly 9%, according to GlobalData. Innovation In 2020, Singapore’s $4.1bn insurance market saw virtually no growth, after having posted healthy growth of nearly 8% in 2019. But while the pandemic has put a brake on Asia’s economic growth, it also highlighted the need for new products to cover emerging risks such as cyber and climate. It is those gaps in the market that the Singapore insurance market, championed by its government, is looking to fill. “General insurers have remained resilient and agile in response to addressing changing protection needs and evolving risks… The only way forward for us is to continue what we started – proactively driving progress and innovation for our industry to propel Singapore towards its eventual recovery and ensuring insurance remains accessible when people need it most,” said Craig Ellis, president of the General Insurance Association of Singapore. Invention has always been at the heart of the long-term plan to grow Singapore’s insurance market, says Aon’s Mr Wood. “The government has fostered an environment of innovation, bringing academia and the insurance market together to collaborate on product innovation, addressing unmet needs in the country and, more broadly, the Asia region and beyond,” Mr Wood says. CyRiM, the Singapore-based public-private cyber risk initiative, is an example. The “pre-competitive research project”, led by researchers at Nanyang Technological University, in collaboration with industry partners, regulators and academic experts, aims to help Singapore become an industry centre of excellence on cyber risk and grow the cyber risk insurance market. CyRiM has developed its own cyber pricing tool for SMEs, as well as commissioning research into southeast Asia’s enormous cyber risk. A coordinated cyberattack on 15 ports across Asia-Pacific, launched via a computer virus carried by ships, which then scrambles the cargo database records at major ports and leads to severe disruption, could cost as much as $110bn – of which only about $9bn is insured – according to a 2019 report by the University of Cambridge Centre for Risk Studies, on behalf of CyRiM and Lloyd’s. Another emerging risk – climate change – is a particular threat in southeast Asia, where 650 million people live with the ever-present threat of flood, drought, tropical storms and tsunami. As a low-lying island, much of Singapore is vulnerable to rising sea levels, while an increase in severe weather events could endanger its precious water supplies and rising temperatures could cause more outbreaks of vector-borne diseases. So, the search for insurance responses is particularly pressing in the island state. Singapore is home to the Southeast Asia Disaster Risk Insurance Facility (SEADRIF), which aims to strengthen the ASEAN bloc’s resilience to climate-related natural disasters. SEADRIF Insurance Company is incorporated and licensed in Singapore and provides disaster risk financing and insurance products to participating countries. Regional hub Singapore is also trying hard to establish itself as a regional hub for insurance-linked securities. The Monetary Authority of Singapore (MAS) is reportedly extending the ILS grant scheme – which pays the costs incurred in issuing catastrophe bonds in Singapore – it created in 2018 until the end of 2022. The MAS is also exploring ways to enable others risks, such as pandemic, cyber and climate exposures, to be securitised, as well as allowing industry loss warrants, reinsurance sidecars and collateralised reinsurance deals to be set up in the island state. Some companies are already taking the plunge. In August, Sompo Global Risk Solutions launched a parametric pandemic insurance policy that would cover Asian companies against loss of income, expenses or supply chain disruption caused by local lockdowns resulting from a declaration of public health emergencies declared by the World Health Organization. Beazley has also launched a range of liability policies to cover Asia’s fast-growing life sciences sector, which it says is now the second largest in the world after the US. “Covid-19 has also exposed the need for self-reliance among different countries in the region, as we saw closing of borders, restriction on movement of pharmaceutical ingredients and the global vaccine scramble. The response to Covid-19 has also fuelled a race to create tests, vaccines and treatments,” says Prashansa Daga, healthcare underwriter at Beazley. A return to business as usual after the Covid-19 crisis is eagerly awaited by everyone in the Singapore specialty insurance market, says Aon’s Mr Wood, not least because the island state’s economic growth is reliant on full resumption of international trade. “Innovation remains fundamental to the growth strategy, so do expect more from the incubators in Singapore that will no doubt look for scalable risk solutions for export.”

Singapore: playing to its strengths

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