First the good news.
Many in Asia will have heaved a sigh of relief in recent weeks at the news that China’s gross domestic product grew 6.5% in the fourth quarter of last year – and may have taken it as a sign that business had hit the bottom of the trough and was headed back up.
To add some context – this rate of growth is faster even than before COVID-19 struck, hinting perhaps at pent-up demand – and delivering China overall growth of 2.3% for the year, making it stand alone as the only big economy in the world that did not shrink.
It has become commonplace to acknowledge that Asia is the engine room of economic growth – and that is certainly so for the insurance sector. The reality is that China, as the world’s second-largest economy, is the dynamo at the centre of Asia and when it booms, the entire region benefits.
Equally importantly, China is undoubtedly the petri dish for insurance technology developments – from both InsurTechs and traditional insurers alike – and once this segment shifts back into high gear we can expect to see another wave of technology wash over the insurance sectors in the rest of Asia.
So there is every prospect of insurance and reinsurance businesses seeing the benefits of increased economic activity feed through to their own bottom lines before too long - and that might be a pleasant surprise for those who had to complete 2021 financial projections in the depths of last year’s depression.
And now the bad news.
The fact that so many of the new big technology companies are headquartered in China is causing increasing anxiety around the world and there has been a growth in the high profile punishment of China’s tech groups. While we might expect this antipathy to reduce under a new US administration, the ‘Huawei effect’ could have a profound effect on the growth of financial services in Asia.
The list of fast-growing Chinese tech companies is a long one – including Tencent, Alibaba, ByteDance, Baidu, Xiaomi, BYD and the Ant Group, which saw its IPO halted by the regulators.
For financial services growth to continue to be fast and global, there will have to be a trust-building exercise all round – especially if we are to see real ‘decentralised finance’ (what trendies all calling DeFi) based on blockchains or the like.
For the insurance sector, the picture that emerges from all this colour and movement is a muddy one – involving technology groups, traditional insurance market players, InsurTechs, regulators, policymakers and more besides.
This muddy picture is causing a lot of very big questions to be asked.
Are insurance regulators properly equipped to oversee a sector that is undergoing such massive change? Do they understand the real power of data and how good (and how dangerous) it can be? Do they understand what modern (and young) consumes want from their insurer?
The business of business is making a profit – and that goes for the insurance sector too.
The business of customers involves buying protection – for their freight, business interruption, travel, life, health and so on.
The business of technology groups is disruption of the old ways and doing it better and quicker and cheaper.
The business of governments is complicated, at best.
Technology was already changing the insurance business and this has been demonstrably accelerated by the pandemic. Add an overlay of international relations opacity and the sector is at risk of missing out on the recovery boom that it – and all economies around the world – needs.
Paul McNamara
Editorial director
Asia Insurance Review