Page 26 - AEC Digital Edition

life players in Cambodia, four companies have shareholders
from ASEAN countries.
Non-life insurance, particularly commercial lines like
property and construction, dominates the insurance
market structure in CLMV. The ASEAN 6 countries generally
see a more balanced split between life and non-life
businesses, with life representing a larger share in most
countries. This market development gap is expected to
improve with accelerating investments and economic
growth in CLMV. This should help boost individual wealth
and consumption, which will lead to additional demand
for personal property and life protection.
Ready To Open?
Liberalisation of financial services is subject to national with a substantial margin generated from commercial
policy and local political environment. Governments are
usually cautious in opening up their financial markets.
Also, local forces resist economic integration, and this
protectionism hinders market liberalisation in some
countries.
Under the AEC blueprint, ASEAN member countries
have identified insurance sub-sectors for liberalisation by insurance buyers, supported by well-regulated consumer
2015. However, there are substantial doubts on when, what,
and how liberalisation will ultimately take place. Current
conditions on foreign investment have generally become
more open, with majority foreign ownership of insurance
companies being possible in most ASEAN countries. More
developed markets seem to be more open in terms of lifting
restrictions on foreign ownership (Thailand lifted the cap
to 49% from 25% in 2012. Malaysia relaxed the limit to 70%
from 49% in 2009). However, less developed countries are
liberalising at a slower pace.
One impediment is the concern over foreign players
dominating the domestic market. Nevertheless, the
purpose of the AEC is to accelerate growth and increase
resilience to external shocks. It is generally recognised
that the advantages of integration outweigh the costs,
as any individual nation will find it difficult to combat
external influences in global markets. This collective
benefit continues to drive a strong will among market
players to cooperate.
Insurance is essential to support growing economic,
manufacturing and trading activities. A collective ASEAN
market will lead to increased demand for insurance services region. Some ASEAN companies still post relatively high
with region-wide support and capability. Corporates tend
to optimise their insurance programmes utilising those
insures who exhibit strong services in multiple locations
when they look to expand across the region. Hence, the
regional integration of insurance markets, depends more
on the readiness of insurers to compete regionally and
seize on new, regional opportunities.
The movement of corporate customers will likely
encourage insurance businesses to move with them. This
will be an important factor in driving gradual integration. reforms to align with the regional standards. In light of
ASEAN companies particularly from Indonesia, Malaysia,
Thailand, the Philippines, Singapore and Vietnam, have
enhanced their regional investments mostly through
infrastructure, real estate, power and utility projects.
Governments have encouraged state owned enterprises
to expand in the region. In the financial services sector,
ASEAN banks from Malaysia, Singapore and Indonesia
24 AEC – IMPACT ON INSURANCE • DECEMBER 2015
have strengthened their foothold in the region during the
past few years. Small and medium sized enterprises have
made regional investments in manufacturing, services and
retail sectors. In light of these investment trends, corporate
moves have become a driving force for increasing market
opening.
Regulators have their own agendas and priorities with
regard to market liberalisation. They can either delay the
opening of their markets – which may not necessarily
make their local companies stronger – or act quickly to
make domestic companies understand their competitive
disadvantages and advantages under an increasingly open
and competitive market. Local companies with strong
focus on personal lines may underestimate the impact
from an opening market. However, successful companies
business will be better able to offer competitive pricing
along with the delivering of targeted margins.
Pros and Cons of An Open Market
From a positive perspective, the AEC will bring about a wider
choice of products and services at competitive prices for
protection. Insurers can set up their management
operations such as data centre, claims centre and financial
centre in multiple countries, while availing themselves to
larger talent pools across the region. Capital can also be
deployed to markets and business areas which afford the
best growth and return potentials.
On the negative side, the concept of AEC may skew too
much of an advantages towards larger and financially
stronger players, which could work against maintaining a
competitive market. Also, having a free flow of capital and
investment may raise concerns on more macroeconomic
issues such as inflation, potential asset bubbles, and
sudden net investment outflows, as well as other spillover
effects due to interdependence on trade and supply chains.
However, A.M. Best expects AEC will ultimately lead
to the region being more resilient to external shocks
by creating a larger market to absorb potential risks
and by encouraging adoption of progressive initiatives.
Companies that already have operations in multiple
ASEAN countries will benefit. However, not many ASEAN
companies have developed substantially across the
expense ratios due to their lack of economies of scale, as
well as some inefficiencies like higher distribution costs.
In the longer term, A.M. Best sees AEC as accelerating the
improvement in industry efficiency and standards.
Overall, A.M. Best believes AEC will benefit from
insurance industry growth over the long run. Some
local companies may face the challenges of adjustment
and improvement amid this changing landscape, while
some ASEAN nations have already made regulatory
these investment trends, the concept of AEC has actually
induced corporate moves which become a driving force for
supporting and growing an open marketplace.
Chi-Yeung Lok is a Senior Financial Analyst at A.M. Best Asia-Pacific
(Singapore) Pte. Ltd.
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