By Dr William Thomas, Director, Economist Intelligence Corporate Network, South-East Asia
The Covid pandemic has disrupted many industries, and the insurance sector is no exception. 2020’s global economic downturn dampened insurance sales and renewals in that year, particularly for life insurance. However, the Economist Intelligence Unit (EIU) has evaluated the industry and expects a return to growth in sales during the next five years. The upturn will be fastest in wealthy markets that have achieved higher vaccination rates and enjoyed the economic rebound that typically follows. Developing markets that offer the greatest long-term market potential will continue to suffer from low vaccination rates, weak economies and more limited disposable income for some time, in many cases through the end of 2023.
Insurance is by and large a discretionary purchase that businesses and consumers can cut back on during times of austerity. Premiums globally saw a real (inflation-adjusted) drop of 1.3% overall amid the pandemic and related crises in 2020, according to Swiss Re, a Zurich-based reinsurer, compared with 3% real growth in 2019. Costs were often contained, however; although the situation varies by market and even according to the wording of individual contracts, most insurers incurred only limited liability for cases of business interruption. The policy language in many cases excluded closures related to disease outbreaks.
Of the two main segments of the market, life insurance is the more discretionary and suffered the sharpest fall in business volumes in 2020, by 4.4%, according to Swiss Re. Protection products, which provide income to dependents in case of the insured’s death, are less valuable when a worker is unemployed. Savings products providing pay-outs for future needs are also a highly discretionary purchase in bad times. Moreover, during economic stress, savers are more likely to keep funds in highly liquid saving products that can be readily tapped as emergency funds and to shun usually less liquid life insurance products. In addition, high jobless rates mean that fewer workers are in formal employment and therefore covered by group policies.
The other main segment of the market, general insurance, is less discretionary, as property owners generally want to preserve coverage for their homes, buildings, vehicles and personal property. In some cases, such as vehicle liability, coverage is often mandatory. As a result, this part of the market grew by 1.5% in 2020, down by 3.9% from a year earlier.
Asia’s Economic Outlook
With industry growth being tied so closely to economic recovery it helps to look at macroeconomic trends in Asia to get a sense of how the sector might recover in the region. Economic performance has been somewhat uneven throughout Asia’s diverse markets over the last two years. Some, like China and Vietnam, saw limited growth in 2020 while almost everyone else saw a decline; others, such as Indonesia, South Korea, and Singapore, recovered their lost GDP in 2021; a few, including Malaysia and Japan, expect to return to pre-pandemic levels of GDP in 2022; and some may take a bit longer, such as Thailand, which is only now seeing a reopening of its critical tourism sector without tourists from China, its largest single source of visitors.
