Page 21 - AEC Digital Edition

Figure 1: Results for the of the different level of economic and financial development
Milliman ASEAN Liberalisation Index (MALI)
Rank Country Index (0-100)
1 Singapore 70
2 Philippines 58
3 Malaysia 49
4 Indonesia 49
5 Thailand 46
6 Brunei 41
7 Vietnam 40
8 Cambodia 33
9 Laos 33
10 Myanmar 15
Note: Due to the rapidly evolving nature of the life insurance industry the insurance industry for all ASEAN member states to follow
underlying data and considerations upon which the MALI is scored are
extremely time-sensitive. While the intention is to adopt an objective
approach to determining the underlying scores that make up the MALI,
some aspects could be considered subjective and as such may be more
open to interpretation and judgement.
To reinforce the differences in insurance practices
across various countries, within the report cited above,
the Milliman ASEAN Liberalisation Index (MALI) ranks the
relative state of liberalisation of the life insurance industry
within each ASEAN country, taking account of the following
dimensions:
• Product development: The extent to which product
innovation is allowed and encouraged, as well as
restrictions on product design imposed.
• Distribution: The openness of each jurisdiction to
employ different distribution channels, taking into
account the regulatory restrictions for each channel.
• Investment: The extent to which life insurers have the
flexibility to determine investment strategies.
• Sophistication of Capital Regime: The progressiveness
of capital regimes in each jurisdiction towards an
“Economic Capital” framework.
• Policyholder Protection: The extent to which local
insurance regulators have put in place meaningful
mechanism aimed at protecting policyholders.
• Foreign Ownership: The extent to which participation
of foreign insurers is allowed or encouraged to operate
in the local life insurance market
• New Licences: The availability of new life insurance
licenses and the typical duration required for licence
approvals
• Talent Mobility: The ease of issuance/renewal of work
permit for foreign staff and other issues around talent
mobility across ASEAN countries.
The higher the MALI score, the greater is the state of
liberalisation. Singapore is ranked with the highest overall
score, confirming the widely held view that it has the most
advanced life insurance industry in ASEAN. Perhaps more
surprising, the Philippines has the second highest MALI
score. Myanmar has the lowest MALI score, reflecting the
nascent state of its life insurance industry.
The differences in insurance regulations, largely a result
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in each member state, is expected to become a key hurdle
hindering any meaningful integration between countries.
In a survey of senior regional management conducted by
Milliman in 2014, life insurance executives around the
region warned that the disparity in the maturity and
sophistication of markets are likely to be the main barrier
to implementation of the AEC, although they have also
expressed optimism that the concept of the AEC would be a
positive development to the overall life insurance industry.
The survey also suggested that life insurance executives
are concerned that the AEC may disadvantage the less
developed markets within ASEAN, engender increased
competitive pressure and would be costly to implement.
What does it take to achieve the goal of the AEC?
While the progress to date suggests that the goal of fully
fledged common regulation, with cross-border sales
and flow of talent, may be more realistic as a long-term
aspiration, there is scope to focus on what integration could
mean in the immediate short- to medium-term time frame.
Identifying some minimum standards for the life
could be a good start. Areas such as capital and reserving
frameworks, sales practices, policyholder protection and
others should be streamlined in such way so that it they will
benefit life insurance players across all markets in ASEAN.
Perhaps also recognising the complications of national
policy objectives and wide disparity between each member
state, the AEC framework adopts an “ASEAN Minus X”
approach, essentially allowing countries that are ready
to liberalise to proceed first, with others joining at a later
stage. An alternative may be to categorise countries at
similar development stages (for example, ASEAN 5, Brunei
Plus CLMV) or cultural links (for example, “Thailand Plus
CLMV”).
Even though the ASEAN Secretariat has declared that the
European Union should not be seen as a model for the AEC,
possibly more so in light of recent developments occurring
within the European region, one should not completely
disregard the potential lessons that may be drawn from the
EU, especially given its similarity in terms of the existence of
vast cultural diversity. To ensure all citizens have the chance
to understand issues, legislations in the EU are translated
into 24 national languages. Similar efforts should be carried
out also within the AEC.
As multinationals continue to seek opportunities to
expand into new territories in the ASEAN region, the
MALI could serve as a regional benchmarking tool to help
management assess the relative stage of development of
respective markets. It would be interesting to see how
countries transition along the MALI index in the coming
years.
Once greater cooperation is shown to be demonstrably
beneficial to member countries, and with the introduction
of common minimum standards in key areas, it could then
be easier for the AEC to target more ambitious goals in the
future.
Mr Richard Holloway is Managing Director South East Asia & India Life;
Mr Michael Daly is Principal & Consulting Actuary; and Mr David Kong
is Consulting Actuary for Milliman
AEC – IMPACT ON INSURANCE • DECEMBER 2015 19