PART 3/3Alternative routesto growthInsurance growth report 2019In the first two sections of this report, we examined trendsin M&A. But while a perennially popular and effectivestrategy for delivering growth, a transaction is not alwaysthe best solution. A range of challenges can get in the way,such as finding a target at an acceptable price; overcomingregulatory restrictions or obstacles; and dealing withpost-transaction issues around people and systems.Whether by necessity or design, it is often better to consideralternatives. In this final section, drawing on the insightsof our partners around the world, we look at some of theother ways re/insurers are tackling the growth conundrum.
2Plantinga flagUSD280billionprojected size of India’sinsurance industry by 2020India Brand Equity Foundation9total number of foreignre/insurers who haveopened a branch in IndiaInsurance Regulatory andDevelopment Authority of IndiaIn developed market locations where buying an insuranceentity is too expensive, opening a branch or establishing aninsurance subsidiary may be a viable alternative. In HongKong, some operators are looking at a greenfield licenceinstead of M&A in order to enter or strengthen their positionin the market. This is not necessarily disadvantageous interms of time and capital. The regulators are particularlykeen on insurers seeking to utilise technology, and HongKong has a fast track licensing process for digital-onlyinsurers. In the first such example, in late 2018, Bowtie – anew online-only life insurance company backed by Sun Lifeand a group of angel investors – was granted a licence.India, one of the world’s most promising insurancemarkets, continues to attract attention from foreign playerslooking for opportunities. Allianz is the latest internationalre/insurer to take advantage of regulations opening up themarket, receiving approval in August 2018 to open a newbranch office in Mumbai. Lloyd’s offers another route intothe India market, with Markel granted a licence last year towrite business on the Lloyd’s platform.Elsewhere, in South Africa, branch licences have beenintroduced, and foreign re/insurers are currently applyingfor these. However, uptake has been lower than anticipatedas the costs of establishing a branch are high in termsof office space and staffing. An additional factor has beena lack of clarity about the application requirements whichhas deterred some companies.In December 2018, the government in Saudi Arabiapublished regulations to allow foreign insurers to set upbranches in-country. This will have the effect of reducingthe number of smaller operators, and bringing in insurerswith better controls and skills, in line with moves we haveseen in other emerging insurance markets. However, as yetno new licences have been granted. Elsewhere in the region,a number of international players including Talbot andPartnerRe have exited the market in Dubai where they hadpreviously set up a presence to act as a hub for business inthe wider Middle East region.Although more savvy investors are looking atgreenfield licensing options in some developedmarkets as an alternative market entry optionto M&A, this is dependent on being able to hirea quality management team – finding the righttalent with the requisite experience can bea challenge.Kevin Martin, Hong Kong
3Alternativedistribution 4.7billionamount of UK generalinsurance premiumswritten by MGAsManaging General AgentsAssociation4millionBancassurance has been around for some time anddeals involving those banks that wish to partner withinsurers have largely been done. However, this remainsa significant channel. Prudential recently extended itsdeal with United Overseas Bank of Singapore up to 2034to enable it to distribute its insurance products throughUOB’s extensive network of more than 400 branches in fivemarkets. This gives Prudential access to over four millionUOB customers in Singapore, Malaysia, Thailand, Indonesiaand now a fifth market, Vietnam.Meanwhile, insurers are looking at ways to join up withnon-insurance alliance partners in sectors including travel,medical and retail to enhance their distribution. In oneexample, online motor insurer Singapore’s DirectAsia,which operates without an agency network, has enteredinto an introducer arrangement with a group of vehicleservice centres that conduct compulsory annual carinspections. DirectAsia is opening up mobile sales centresin those service centres themselves to offer insurancepolicies to customers at the same time as their carsare being serviced.Worldwide, Managing General Agents (MGAs) are oneof the fastest-growing segments of the insurance industry.Over 300 MGAs currently underwrite over 10% of the UK’sGBP 47 billion general insurance market premiums.1 In theUS, MGA growth continues to outpace the growth of theproperty and casualty market, while 21 of the top 25 P&Cinsurers have relationships with MGAs.number of customersPrudential can reachthrough its bancassurancedeal with Singapore’s UOBPrudentialOver the past couple of years there has been a rise in thenumber of new reinsurance-focused MGAs. There is a clearrationale behind this development: re/insurers consideringtheir growth options may be looking at potentialacquisitions and lamenting a dearth of targets, particularlyat the right price. Should this initial hurdle be overcome,any potential deal would take time to complete before thechallenge of post-merger integration and its inherent peopleand systems issues are addressed. It can be far simplerto set up an MGA or invest in an existing one.MGAs continue to be an important,established and fast-growing sector butthere is a concern in some parts of themarket that an MGA bubble may beforming. The key to maintaining successfor any MGA is to consistently prove theirvalue by delivering profitable underwritingon a lower operating expense base thantheir paper providers. Increasingly this willmake specialisation crucial for success ina crowded market.Jennette Newman, London1https://www.mgaa.co.uk/MGAA /MGAA/About Us/MGAA R/MGAA2/About Us.aspx
4Partneringfor successWhere M&A is not an option, a joint venture (JV) canbe an alternative route to deliver similar outcomes.In the search for accelerated growth, in May 2018 HDIGlobal and Hannover Re announced the launch of aEUR 1 billion specialty joint venture that will writebusiness in lines such as errors and omissions, directorsand officers, aviation and offshore energy insurance whichit believes are profitable and rapidly expanding.In further evidence that partnering can enable two partiesto draw on each other’s strengths, last year Langhorne Rewas launched as a joint venture between Renaissance Reand Reinsurance Group America to target large in-forcelife and annuity blocks. The venture brought togetherunderwriting expertise provided by RGA and the thirdparty capital and structural expertise of RenRe.17number of Vietnameselife insurers that are jointventures or wholly foreignowned, out of a total of 18Hanoi Times49%size of Italian insurerGenerali’s increased stakein its Indian reinsurancejoint venture with FutureGroup (up from 25.5%)Insurance JournalA joint venture is also a popular way to access newmarkets, especially when restrictions on foreignownership are in place. In early 2019, Allianz enteredthe general insurance sector in Vietnam – one of thefastest-growing economies in Asia – through a jointventure with FPT group, a locally based technologyservices provider.India remains one of the most attractive emergingmarkets for those with growth ambitions. Americaninsurance major MetLife recently announced it is lookingto raise its stake in the Indian life insurance businessit runs through a joint venture with state-owned lenderPunjab National Bank. Australia’s IAG is going in theother direction, looking to exit its nine-year JV withIndia’s SBI General Insurance as part of a larger globalrealignment. There is no shortage of investors lookingto step in, with reports suggesting around 40 global suitorshave expressed an interest.China’s Belt and Road initiative is seeing Chineseconstruction companies looking for opportunitiesin emerging markets across Latin America, Africa andAsia. As they do so, Chinese insurers are seeking to createsurety operations in partnership with internationalinsurance businesses.In China, the regulator has made movesto open up the insurance sector to furtherforeign equity participation and is alreadyaccepting and approving life insurancejoint venture applications with foreignshareholdings at 51%. However, the “onesubstantial equity interest” per life and non-lifesector rule means that for many incumbentforeign shareholders, a domestic JV partnermust be commercially willing to cedecontrol to foreign shareholders, therebyraising potential commercial obstacles.Michael Cripps, Chongqing
5Technology is agame-changerin emergingmarkets130millionnumber of downloads of theGrab app in Southeast Asiaacross 336 citiesGrab.comWhile insurtech is taking hold in every insurance market– receiving USD 1.3 billion in funding during Q3 2018,up 20% on the prior quarter according to Willis TowersWatson – it is arguably in the emerging markets where itspotential is greatest. A combination of historic insuranceunder-penetration and rising levels of wealth presentsignificant opportunities. The ability to approach themwith a clean slate, unencumbered by legacy systems andprocesses, is leading to an explosion of innovation drivenby widespread adoption of mobile phone technology.In South Africa, a new breed of insurer is emerging offeringproducts delivered via phone-based apps and takingadvantage of phones’ features such as cameras to helpminimise paperwork and time to purchase for buyers.Insurtech start-up Pineapple, which provides indemnityinsurance, uses photos taken on mobile phones anduploaded to an app to deliver a form-free quote withinthree minutes for any goods an individual wants to insure.Claims are made by voice recording and supportedby photos, with supporting data from the mapping deviceon the user’s phone. No written paperwork is involvedat any point.In South East Asia, Chinese online insurer Zhong-An’stie-up with Singapore’s Grab to launch a digital insuranceplatform across the region is also being viewed as atransformative move. The prize here is access to Grab’svast customer base utilising Zhong-An’s technology withpolicies underwritten by Chubb. Insurance will initiallybe offered to Grab drivers in Singapore to protect themfrom loss of income owing to illness or accident but withambitions to scale up quickly we can expect the creationof a new marketplace for a whole set of insurance products.And in another significant insurtech move in the pastyear, Berkshire Hathaway made a significant investment,estimated to be around USD 350 million, into Paytm, India’slargest digital payments firm, which has around 300 millionusers. Re/insurers around the world will continue to seek outopportunities to access a new generation of customers whocan be reached through technology companies.Growth strategies are becoming morenuanced – it’s not just about M&A.The disruptive force of insurtech is creatingsignificant opportunities for insurersto access new customers, providing theycan move quickly enough to find theright partners.Ian Stewart, Singapore
6Spotlight on:EmergingrisksAs re/insurers consider theirstrategies for growth, they do soagainst a rising tide of emergingrisks. With today’s globalised worldnow more interconnected than everbefore, there are a range of threatswhich are currently difficult to insureagainst but which are moving up therisk radar. Finding solutions to thesechallenges will open opportunitiesand re/insurers will look at everyroute to take them.TechnologyClimate changeThe flipside of the growth of technology and having evermore devices joined together is that it is increasinglydifficult to quantify exposures. Some predict that cyberexposure is a catastrophic event waiting to happenif, for example, a state-sponsored hacker shuts downthe systems of an entire country.Climate change risks faced by businesses fall into threemain categories. First, physical risks that might leadto damage to property, assets or supply chains. Second,transition risks that arise as the worldwide shift to alow or zero carbon economy impacts the finances andvaluations of organisations and asset portfolios. And third,liability risks faced by those alleged to be responsiblefor contributing to climate change, or failing to avert,minimise, or report on physical or transition risks.Environmental product liability litigationPandemicsWe are seeing an increasing body of litigation claimingdamages for the effects of manufactured products.Examples include lawsuits brought in the United Statesagainst the manufacturers of the fuel additive MTBEand against the petrochemical and energy industriesfor causing climate change. The accumulation of plasticsand their impact on the environment, now attracts dailymedia interest. As a result, plastic manufacturers areat significant risk of being the next industry to get caughtup in the wave of environmental product liability litigation.The World Economic Forum released a white paper atDavos in 2019 highlighting the threat to business posedby a new era of epidemic risk. The number and diversityof epidemic events has been increasing over the past30 years and the world is now seeing nearly 200 per year.This trend is only expected to intensify – business leadersneed to better understand the expected costs of epidemicsand how to mitigate them.
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Prudential recently extended its deal with United Overseas Bank of Singapore up to 2034 . In the search for accelerated growth, in May 2018 HDI Global and Hannover Re announced the launch of a . life and