South and southeast Asia present opportunities for insurers, says S&P

S&P Global Ratings believes there are opportunities for insurers looking to enter or expand in the emerging markets of south Asia and southeast Asia, but it will require long-term commitment, prudent risk management, and agile execution. The ratings agency said that with interest rates and inflation staying higher for longer, insurers may seek to prudently review their product and pricing strategy, while more frequent extreme weather may also necessitate a review of underwriting standards and reinsurance coverage. S&P Global Ratings said it believes “insurers that can adapt their products, pricing, and distribution strategies in the face of emerging risks and developing trends are more likely to remain relevant and ensure sustainable profitability”. S&P noted catastrophe protection gap and government initiatives are expected to boost demand for P&C insurance. “Within the emerging markets of south and southeast Asia, governments are pushing for more public-private partnerships as part of efforts to narrow catastrophe protection gaps. This reflects losses from natural disasters being underinsured relative to global levels,” it said. Examples of such partnerships include the Southeast Asia Disaster Risk Insurance Facility (SEARDIF), a partnership between ASEAN and the World Bank. Members include Cambodia, Indonesia, Laos, Myanmar, Philippines, Singapore, Japan, and Vietnam. Other examples include Thailand's National Catastrophe Insurance Fund, and the Philippine Catastrophe Insurance Facility. S&P said another efficient alternative to narrowing the protection gap is parametric insurance, noting that India was one of the first few markets to adopt parametric insurance for agriculture-related risk. S&P said another growth area for P&C insurers is insurance products for infrastructure protection. “Over the years, governments in emerging south and southeast Asia have focused on the interplay between infrastructure development and an influx of foreign funds. This continues to boost demand for multiple business lines such as property, engineering, and worker's compensation insurance. Projects such as Indonesia's State Asset Insurance Program and Thailand's Eastern Economic Corridor highlight these benefits.” The ratings agency said the ability of insurers to raise premium rates is limited: “Before they can revise prices, they must consider several factors, including competition, the budget constraints of their consumers, and regulatory tariffs, where applicable (i.e. in markets such as India, Indonesia, and Malaysia).” It added that disciplined underwriting is key to maintaining margins for P&C insurers. Underwriting remains relatively profitable in most emerging markets in south and southeast Asia, but pain points persist in India, Thailand, and Indonesia, where pricing could be improved, S&P said. For most of India's P&C insurers, inadequate pricing because of intense competition continues to weigh on underwriting results, and combined ratios typically exceed 110%.

South and southeast Asia present opportunities for insurers, says S&P

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