Asian mortality protection gap an opportunity for reinsurance & ILS

The burgeoning $58 trillion mortality protection gap impacting Asia was highlighted by reinsurance giant Swiss Re recently, signalling an opportunity for capital providers in the insurance, reinsurance, catastrophe bond and insurance-linked securities (ILS) space.

Reinsurer Swiss Re has published a preview and accompanying fact sheet prior to the release of its latest Asia-Pacific Mortality Protection Gap report, citing that the “mortality protection gap in life insurance has increased by more than $16 trillion in the last four years, and more than doubled in the last ten.”

The substantial broadening of the mortality protection gap across Asia has taken the total to a significant $58 trillion, claims Swiss Re, and despite a deceleration in the growth of the gap over the last 24 months or so, the reinsurer stressed that “it is still worryingly high and underlines the fragile nature of financial security for many families in the region.”

Asia’s lack of insurance penetration is often at the forefront of discussions regarding the necessary global effort of increasing disaster resilience, owing to the region’s high vulnerability to weather-related catastrophe events and the fact that many of its citizens are on low incomes.

And now, emphasising just how much of an opportunity and challenge the Asian markets presents to the insurance, reinsurance and wider risk transfer landscape, the focus has turned towards its significantly expanding mortality protection gap.

Prior to Swiss Re’s release, speaking to A.M. BestTV at the 2015 Global Insurance Forum in New York earlier this year, Tony Cheng, Executive Vice President of Asia Markets at Reinsurance Group of America (RGA), commented on Asia’s protection gap and the opportunities this presents, including a succinct definition of the mortality protection gap.

“The one that is top of mine (when asked about opportunities in the region) is filling the protection gap. The protection gap is defined as the difference between the amount of life and health insurance a person has, compared to the amount of life and health insurance a person needs,” said Cheng.

Sustained economic growth and rising incomes throughout Asia over the last two decades has seen “tens of millions” of people transition from having just enough money to provide food, shelter and education for their families, to the emerging middle class where paying for life insurance premiums are a possible and more affordable, explained Cheng.

The resulting impact of this is the challenges and opportunities presented to an overcapitalised, increasingly lacking-in-demand global re/insurance sector, including the growing volume and capital-provider base of the catastrophe bond and ILS market.

“It’s incumbent upon the sector to find new ways of reaching consumers, educating them about the dangers of this lack of protection and developing innovative solutions to narrow this protection gap,” advised Swiss Re.

A view shared by Cheng, who expanded on this point to stress that this also provides a massive opportunity for RGA and other life reinsurance companies in the Asian market.

“Because the life reinsurers have really been the secret sauce in the background creating all these wonderful innovative protection products that provide for the customized needs of the Asian consumer,” said Cheng.

The large, $58 trillion mortality protection gap clearly indicates that as a whole, the risk transfer industry is failing to meet a need in the Asian life market.

And given that this figure is increasing still, it’s apparent that life insurers in the region will require the financial support of players in the reinsurance, alternative reinsurance, mortality catastrophe bond and ILS sector to ensure they have enough capital to bridge the gap.

While it’s certainly not an easy challenge to significantly narrow Asia’s protection gap, the knowledge, expertise, innovative qualities and currently capital-rich global re/insurance and ILS space is a good place to start.

As well as developing products and solutions to meet the needs of millions of vulnerable Asian families, the deployment of capital from the sector into new, emerging business lines will help to alleviate some of the pricing pressures currently impacting the sector.

And also presents opportunities for players to enter the Asian life market and go some way in helping the development of the Asian re/insurance market as a whole.

Swiss Re urges that governments, insurers, industry regulators and so on must work together to create solutions to help close the protection gap in Asia, something that will surely require the support and capacity of the wider, alternative risk transfer markets.