Humans have a tendency to imagine that life will carry on the way it always has, by and large, and so are often unprepared or underprepared when things change quite fundamentally.
Think of the end of the Roman empire, or the Ottoman empire, or the British empire or the collapse of the USSR. Sometimes big stuff happens. The question is whether the insurance industry had prepared sufficiently for this kind of seismic change?
The start of such a vertiginous shift might be facing the insurance sector in APAC in the opening weeks of 2025 as a new administration takes over in the US. It comes in with the promise of swingeing trade tariffs and the ending of its role as the world’s policeman.
The effect on the world could be intense but particularly on Asia – and the insurance sector could be at the pointy end of that.
As any educated economist will advise, a nation’s balance of trade is determined by aggregate supply and demand – not by the sum of bilateral balances – and so tariffs are likely to lead to more inflation spikes and further degradation of the US dollar as the world’s reserve currency.
Simply put, macroeconomics always comes out on top – because of persistent macroeconomic pressures. Discriminatory tariffs – 60% on China and 20% elsewhere – can only lead to retaliation which would result in a swift decline in world trade and output.
Informed estimates suggest that this would crop several percentage points from the world’s GDP and would most probably lead to a recession. And it would be a deep recession that could affect most APAC insurers profoundly.
In recent weeks, Goldman Sachs CEO David Solomon said that global investors are presently “on the sidelines” over investing in China because of weak domestic demand and difficulties in expatriating capital trapped there.
In the medium-to-long term, China remains ‘the growth story’ and so a confrontational posture is tantamount to self-harm.
The US has remained the most powerful nation on earth since the start of the 20th century because of the power of example. Its leaders set the rules and stuck by them. Upending that winning strategy can only lead to a diminution of power.
The only plausible world power that can step in and assume the mantle of the world’s most powerful nation is China – which might come much quicker if it gets seriously behind the stimulation of domestic demand.
What should APAC insurers be doing now? The best strategy is to prepare for what’s coming. Most nations are pumping bigger and bigger sums into defence spending. That spells an opportunity for insurers. World trade is likely to atrophy and so cargo and hull insurers need to be planning.
AI is another area that insurers need to understand more deeply – and spend more on developing. It is almost universally accepted that AI will be a significant game-changer for the insurance sector but the insights that are emerging around how it is being deployed are pedestrian at best.
Insurers could also usefully be making sure that they are holding on to their senior grey-haired leaders. Some of them have been through tough times before. Their expertise could be essential in the years ahead. A
Paul McNamara
Editorial director
Asia Insurance Review