An estimated 75% of households in the Asia Pacific region will face financial stress in the event of the death of the main breadwinner, according to research from Swiss Re.
The reinsurance firms recent research highlights the significant lack of uptake of life insurance products in the Asia Pacific region, as well as the massive opportunity for the insurance, reinsurance and capital markets sectors to fill that gap through provision of protection products.
While the total Asia Pacific mortality protection gap is seen as a huge $83 trillion, defined as the difference between the protection needs of a household and financial resources available to sustain a family’s future living standards in the event of the unexpected death of the main breadwinner(s). The amount of insurance and reinsurance industry premium needed to facilitate the closing of the gap is also stark, at some $292 billion annually.
It’s not just a lack of capacity or insurance availability though, that drive this mortality protection gap.
Swiss Re also highlights the underestimation of risk exposure and protection needs, as well as the perception that insurance solutions are expensive and a lack of understanding of insurance in general.
All of which points to a huge task for the insurance and reinsurance industry in furthering education on life insurance products in the region, as well as the need for large amounts of capacity to back expansion of mortality protection into Asia Pacific markets, a potential role for the capital markets in support.
Swiss Re’s study modelled Asia’s mortality protection gap at the household level, using the results of an extensive consumer survey of over 14,000 respondents across 10 markets: Australia, Mainland China, Hong Kong SAR, India, Indonesia, Japan, Malaysia, Singapore, South Korea and Thailand, in combination with macro data.
“This research is the most comprehensive study on consumer attitudes and preferences towards the awareness, ownership and purchase of life insurance products in Asia-Pacific to date, showing the pressing need to better understand and bridge the mortality protection gap,” explained Michael Rolfe, Head Solutions Group Life & Health Asia, Swiss Re.
“Our society faces its greatest health and economic challenge of recent times. The current COVID-19 pandemic highlights the crucial role that insurance plays in providing stress relief and financial support in times of uncertainty.”
The mortality protection gap is largest in China, at $41 trillion, while India is seen as most vulnerable as some 83% of families have their protection needs unmet.
If this seems like a big opportunity now, then in just 10 years time it is worth noting that Swiss Re estimates the mortality protection gap in the Asia Pacific region could reach $119 trillion by 2030, across the ten surveyed markets.
Up until 2030, Swiss Re believes the $292 billion of annual premium is needed to help close this protection gap.
“Underestimation of protection need, lack of consumer risk awareness and low uptake of life insurance continue to underpin the mortality protection gap in Asia,” explained Kelvin Ho, VP, Health & Medical Solutions Asia, Swiss Re. “A good starting point is to help consumers calculate and visualise their own protection needs, and stock take on the financial assets they have access to.”
“Insurers need to be creative in overcoming ingrained consumer mindsets, to design optimal distribution and customer experience in meeting consumer concerns for protection in Asia-Pacific,” Ho further explained. “With our experience and expertise in behavioural economic, data science and risk assessment, Swiss Re is uniquely placed to develop more flexible and customer-centric protection solutions, providing consumers and clients the understanding and solutions to close the gap.”
But the Covid-19 pandemic could be a catalyst for increased uptake of life insurance related products, Swiss Re predicts.
“The increased awareness of life insurance during this pandemic period contrasts sharply with the added uncertainty over life and livelihoods brought by the COVID-19 outbreak. At no other time has understanding and closing the mortality protection gap been more urgent,” Ho said.
Mobilising capital and capacity is just one piece of the puzzle for closing the mortality protection gap.
Yes, the capital markets can assist in driving capacity for this purpose, as global insurance and reinsurance players, like Swiss Re, could tap the capital markets to offload mortality risk aggregations using mortality catastrophe bonds, or other instruments.
But alongside this, the use of technology, simplified product design and ways to bring insurance more directly to consumers through channels they are used to buying through will also be key.
By engaging consumers with life and mortality protection products in their typical daily experience, re/insurers can hope to increase uptake and reach more deeply into the markets where protection is most lacking today.
Swiss Re itself has a platform that could help it achieve this, in its iptiQ digital platform, which is a B2B2C play that allows the company to effectively white-label the Swiss Re balance-sheet for third-parties that can originate risk for it.
iptiQ enables others to sell insurance products that use Swiss Re capacity, business rules and pricing, extending balance-sheet reach, while bringing new risk premium that meets its risk appetite, via a growing range of distribution access partners.
In this way, Swiss Re can expand the reach of its pricing and capacity using tools like iptiQ, which may be critical for getting to consumers in regions like Asia Pacific, while at the same time the reinsurer could use instruments like catastrophe bonds to help in moderating its mortality PML’s, by transferring peak exposures to the capital markets.
It’s going to take innovative efforts to source risk more directly and from the front of the value-chain, such as with iptiQ, while also leveraging efficient capital at the back-end to moderate exposures, for real steps to be taken in narrowing mortality protection gaps in emerging and fast developing economies of the world.
This gap has been widening in recent years, showing that traditional methods alone are unlikely to close it and suggesting that use of technology alongside efficient capacity could be the only way to make significant progress here, in any kind of accelerated manner.
Cultural understanding of consumers and how they interact with financial products will also be key, hence partnerships at the front-end that can expand the reach of the global insurance and reinsurance market and bring its pricing tools and capacity closer to consumers will also be key.
It’s an enormous challenge, but also an enormous opportunity, requiring the support of all tiers in the market, alongside innovation, product design and technology, plus ample efficient capacity from the likes of the ILS market.