Page 10 - AEC Digital Edition

Preparations for AEC – 5 strategic tips
ACR Capital Holdings’ Mr Hans-Peter Gerhardt details how insurers can prepare for the AEC from both an
organisational and industry perspective.
AEC and insurance
At the 12th ASEAN summit in January 2007, the region’s
leaders agreed on accelerating the establishment of an
ASEAN Economic Community (AEC), with the ultimate
objective of unifying ASEAN economies into a single
market. The AEC Blueprint adopted later in the same year as
a master plan governing the implementation of the AEC set
the deadline for economic integration to 31 December 2015.
The AEC aspiration is for there to be a free flow of goods, regulatory environment to failure to build effective local
services, investment, skilled labour, and a “freer” flow of
capital among ASEAN countries. To the region’s insurers, it
is of course the services part of the agreement that matters
the most.
ASEAN leaders have agreed however that any
liberalisation in the financial services industry must
be subject to national policy priorities and adjusted
to the different stages of member-states’ economic
and financial sector development. These stipulations
reflect the sensitivities of the highly regulated financial
services industry where customer protection is of utmost
importance.
As such, under the AEC Blueprint, the first sectors to
be opened up upon the AEC’s inception in December 2015
do not include insurance. Air transport, e-commerce
and infrastructure, healthcare, logistics and tourism
are the five sectors that will be liberalised first. The pace
of liberalisation for insurance as well as other financial
services sectors will instead be slower with no specific
timetable indicated to date.
However, even though a full liberalisation scenario for
AEC insurance markets is only expected to materialise
in the coming decade, we, as the region’s industr y
stakeholders, need to set our respective strategic courses
early on to prepare for our future expanded operating
environment. This was a key talking point at ACR’s recently
held 1st ASEAN Insurance Leaders Forum and five themes
emerged.
Here are five strategic tips.
8 AEC – IMPACT ON INSURANCE • DECEMBER 2015
Beware of premature expansion
abroad
The AEC’s anticipated liberalisation agenda makes
it tempting to embark on a regional expansion strategy.
This is especially the case for players from relatively mature
ASEAN markets. Regional diversification can however easily
translate into “diworsification” if the many challenges on
its way are underestimated. The challenges range from
insufficient understanding of operating in an unfamiliar
distribution networks. History is littered with plenty of
examples of failed expansion projects which have cost
both financial and reputational losses to the respective
companies. This is particularly true for “green field”
establishments through branches and subsidiaries.
In this context, it is worthwhile looking at the experience
of the EU. It took about two decades from trade liberalisation
in goods in the 1950s to the opening up of markets for
foreign, EU-based insurers in the 1970s. It then took
another two decades before the vision of a “Single Market”
materialised. In the insurance space, this entailed “single
passporting”, ie, any EU insurer’s ability to operate in other
EU markets based on home (rather than host) country
regulatory control.
Interestingly, cross-border insurance trade in the EU
was initially rather unresponsive to market liberalisation.
Barriers to market entry, such as a lack of brand awareness
and customers’ reluctance towards utilising foreign
providers, proved almost insurmountable. The most
visible impact was observed in the area of Mergers &
Acquisitions (M&A). Insurers clearly preferred to buy
into existing franchises which, though risky, was seen as
offering higher chances of ultimate success as compared
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