With the beginning of the renewal season in Asian region, Hitesh Kotak, Chief Executive – Japan, India, Korea and South-East Asia, Munich Re, in an exclusive interview with Asia Insurance Post, has said the reinsurance market has currently achieved a sensible balance and Munich Re sees ongoing strong demand from cedents to continue as they face higher capital requirements from exposure inflation and original business growth. On the supply side also, the largest global reinsurer hasn’t observed major new market entrants and expansion of existing capacities, says Kotak
As regional CEO of Munich Re’s South- East Asian operations, you are responsible for some of the large Asian markets like Japan, India, Korea. How are these markets growing and what can these markets learn from each other?
Munich Re expects the above-average growth of its Asian business to continue.
Asian economies will keep growing faster than other parts of the world and this should also drive (re)insurance demand. And, as the insurance penetration levels in most Asian markets are significantly lower than in the US or in Europe, we see a huge catch-up potential in the region as well.
At Munich Re, our focus continues to be on profitable growth through sustainable risk solutions for our clients and partners. We are also prepared to forgo growth if the business does not come at risk-adequate prices.
There is a lot that the markets can learn from each other. They face similar challenges, e.g. energy transition, electric vehicles, cyber risks and of course increasing NatCat risks.
At Munich Re’s Asia Pacific Division, we have built empowered local offices with an established sophisticated exchange platforms to transfer our knowledge between the markets. In the end this is part of our value propositions: strong local teams in the markets combined with global expertise and knowhow transfer.
How do you assess the NatCat activities in these markets in 2024? Any trends the industry should be aware of?
Asia Pacific has seen a couple of severe Nat Cat events this year ranging from earthquake in Japan to typhoons in Vietnam, Philippines to heatwave and floods in India.
Unfortunately, climate change is continuously fuelling the severity and frequency of many NatCat events. For the first half of the year 2024, we have seen USD62bn of insured NatCat losses globally. That’s 70% above the 10-year average.
One trend stands out in particular: The rise of secondary perils. 76% of the insured losses in the first six months of this year are attributable to secondary perils. There are a couple of reasons for this: Increases in population also in high-hazard zones like coastlines, economic and social inflation, inadequate building codes, lack of early warning systems, etc.
On top, climate change is making events like floods, tornados or wildfires in many regions more likely and more severe.
Secondary perils have turned into major risks.
Which are the markets and LoBs Munich Re sees the biggest growth potential in these markets? How much of business do these markets contribute to Munich Re’s top line?
The Asian markets have quite different growth expectations. Some of them, like India or South-East Asia, can achieve higher growth rates than others, however, the more mature markets are coming from a much higher base level. In terms of Lines of Business, we see strong growth across all key segments.
What are your strategies to tackle underinsurance in your markets with innovation including parametric? Can you give examples?
The natural catastrophe protection gap in Asia cannot be closed by product innovation only. To successfully expand the insurance protection to more people and companies in emerging countries, it needs raising awareness about the importance of natural catastrophe insurance, greater investment in risk mitigation and resilience measures to reduce vulnerability and a collaboration between governments, (re)insurers, and international organizations.
Munich Re is actively engaged in all these areas and is also developing innovative insurance solutions aiming to protect vulnerable groups in Asia’s emerging countries. This includes protecting micro, small and medium-sized enterprises (MSMEs) in India and Southeast Asia against unforeseen loss events.
To take one example, Munich Re has partnered with digital lenders and supply chain platforms in Southeast Asia to offer wholesale insurance protection. This protection covers MSMEs against accidental death and specific credit default scenarios including natural catastrophes. So far over 3,000 MSMEs across Indonesia are being supported by these solutions.
In India, Munich Re offers insurance which helps people who have low incomes and borrow money from Micro Finance Institutes (MFI).The insurance pays them money if they are affected by floods, earthquakes or storms. The main benefit for the policyholder is the quick payout, which helps them recover faster.
Munich Re has developed this insurance product and worked with various MFIs to offer it to their customers and adapt it to their needs. So far, Munich Re India has been able to provide protection to over 500,000 borrowers in this way.
Munich Re has also engaged with various central and state government agencies on disaster risk financing solution.
In Oct 2023, NDMA also updated the guidelines for “Utilisation of State Disaster Management Funds (SDMF)”, and has proposed few hazard specific Structural and Non –Structural mitigation measures.
Recently, Nagaland created history by becoming the first Indian state to buy a long term parametric insurance scheme to cover the impact of Excess Rainfall.
Munich Re has been actively engaging with Nagaland SDMA team for over two years and supported them in developing this solution. Munich Re won the tender to participate as the lead reinsurer along with SBI General to provide this cover for three years.
We now are engaging with other stated agencies to share the learnings and encourage them to adopt similar solution for their respective regions.
What is your outlook for the upcoming renewals?
Looking at the factors that drive reinsurance rates, I cannot detect anything material that would point to a sudden end of the current market conditions – especially when taking the recent hurricane Milton in the US and Yagi in Asia into consideration.
The reinsurance market has currently achieved a sensible balance. We see ongoing strong demand from cedents which face higher capital requirements from exposure inflation and original business growth. On the supply side, we have not observed major new market entrants, but rather an expansion of existing capacities.
General conditions and changing risks require a disciplined approach and precise risk management, and that is broadly being recognised. Especially since considerable uncertainties remain: claims inflation is still high in a number of segments and there are significant downside risks hanging over the overall economic environment. At the same time, global insured NatCat losses continue to be on the rise. So the market environment remains challenging and potential future significant losses, like Milton, could impact its delicate balance.
For Munich Re it is of utmost importance that rates and conditions are risk-adequate to insure the sustainability of the business.
What are your plans for the region for the renewals and will you increase your capacity in these markets and in what segments?
Munich Re’s strong balance sheet and independence from the retro market enable us to provide sufficient capacity – at adequate prices – even in difficult market conditions. We have absolutely no constraints to deploy capital in an ongoing, attractive market environment, but we will not do it for growth’s sake.
As evidenced in recent renewals, we are leveraging our superior underwriting qualities to safeguard profitability and diversification, and we do not shy away from reducing volumes if necessary.
How do you see an expanding Indian economy and its positive impacts on the Indian re/insurance markets?
Indian economy continues to present tremendous growth opportunity for the insurance sector. The insurance penetration level in non-life segment remains close to 1% of the GDP, which is well below the global benchmarks of large economies.
The focus of the government to make India a manufacturing hub, creating new opportunities on Infra, defence, new technology, critical products like Semi-conductor will allow insurers to grow organically.
However insurers also need to invest on creating solutions that can continue to address the evolving risk landscape.
The traditional indemnity products may not be the only method, we will need to work together to leverage other solutions like Parametric insurance products, CAT Bonds (leveraging GIFT city set up), among other possible solutions.
The IRDAI has already helped in easing the processes and reducing operational challenges for insurers to enable innovation in the market. The insurers are now free to create own products, draft
own wordings and bring in solutions in line with the evolving risk landscape.
The regulators vision of “Insurance for all” by 2047 is noble and ambitious. The industry has to come together to bridge the protection gap, working towards delivering on the “Trinity of insurance” – Availability (Beema Vahak), Accessibility (Beema Sugam) and Affordability (Beema Vistaar).
One key factor is that the insurance/reinsurance player’s focus on client centricity and balance sheet sustainability is not compromised in this process. The growth if not handled with discipline and sensibility could lead to poor outcomes both in terms of protecting the capital base as well as customer service.
Recently, you have done a parametric natural catastrophic cover for Nagaland, one of the smaller states in India, along with other players. Do you think India has large scope for such covers and what should be done to tap this segment?
India is susceptible to large number of natural disasters of varying degrees. The climate change has further added to the challenge and we can observe an increasing trend in floods and cyclones – both on east coast and the west coast.
We have witnessed nine NATCAT, Glacial lake outburst flood and cyclone events in 2023 as well as multiple flash floods this year. The heat wave conditions and the inconsistent rainfall patterns are also adding to the woes of the Indian citizens.
The impact of disasters can be long-lasting and multi-generational. In addition to the loss of lives, buildings, equipment and infrastructure, its produces major indirect consequences such as business interruption, loss of employment and output, decreased tax revenues, impaired institutional capacities and a rise in poverty levels.
The impact of disasters on the economically weaker section of the population is more profound, and they suffer both loss of assets as well as livelihood. There is a clear need for reducing the protection gap and create a safety net for the weaker section of the society along with restoration and reconstruction of the infrastructure and other key assets of the country.
The Nagaland Parametric insurance product has presented a good example where insurance industry along with the government can develop models that can be used to offer the protection for the vulnerable segment of the society in case of natural disaster for loss of livelihood and loss of assets. Now it is important that the learnings from this experience is used to develop similar solutions for other states and work towards a pan India solution.
The Insurance regulator (IRDAI) and the National Disaster Management Authority along with the insurers and reinsurers are working towards making these solutions available for all and Munich Re is playing and active role in the same.
What is the key message you will give your clients at SIRC?
Munich Re will help you grow profitably and sustainably over the cycle, we are there to be your long-term partner