The divergence in the growth trajectories between the developed and the emerging life insurance markets in Asia is increasing, notes global management consultancy firm McKinsey & Co.
In its report titled “Global Insurance Report 2023: A paradigm shift in Asia life insurance”, McKinsey says that from 2012 to 2022, developed markets saw a combined 2% growth in GWP while emerging economies’ combined GWP grew by more than 160%. This divergence between developed and emerging markets is primarily driven by negative growth trends in mature markets such as Japan, which saw a decline in premiums of around 3% from 2017 to 2022.
Declining pace of growth overall
Overall, life insurance premiums in Asia grew at 4.0% annually from 2012 to 2022. However, the region’s growth notably slowed in 2017–22 compared with the prior five years.
The slowdown in Asia’s life insurance industry was primarily caused by a substantial halt of growth in China and Hong Kong, as well as a decrease in Taiwan, during the peak of the COVID-19 pandemic. Factors such as physical distancing, low interest rates, and market volatility contributed to a decline in demand in these three markets. Furthermore, in 2017, regulatory changes with respect to unit-linked plans affected the growth of that product category in China.
Challenges and opportunities
Although Asia weathered the pandemic and its effects, weakened market drivers—including inflation, an ageing population, and market volatility—may hinder the return of Asia’s life insurance industry to its previously high growth levels, says the report.
At the same time, opportunities abound. The life insurance sector in Asia has long been a growth engine for the global insurance industry. As economies surge ahead, driven by rapid urbanisation and technological advancements, the demand for financial security and protection is intensifying. The region’s growing middle class is recognising life insurance as a vital tool for securing their families’ financial futures, and the health and retirement sectors are evolving as ageing populations and rising incomes provide consumers with new financial opportunities.
The report said, “Still, life insurers need to take immediate action to take full advantage of opportunities. Projections indicate that by 2030, Asia’s mortality protection gap is poised to widen exponentially, reaching a staggering $119tn. This widening gap can be attributed to a confluence of factors, including the rapid ageing of populations and substantial gaps in retirement systems. The lack of robust social security mechanisms, relatively low insurance penetration rates, and other systemic factors in emerging markets contribute to this significant gap, underscoring the need for proactive interventions and comprehensive solutions.”
Strategies
McKinsey explores multiple imperatives that insurers will need to embrace to create sustainable value going forward:
Developed markets: Map out the value creation strategy, with a focus on improving efficiency and increasing returns from in-force books and investments.
Emerging markets: Unlock the performance of distribution channels, with a focus on revising the approach to tied agents and expanding bancassurance relationships.
Adjacencies: Reorient toward meeting broader customer needs such as health and retirement in a way that is relevant for customers and financially viable for insurers.
For this research, Asia’s “developed markets” include Australia, Japan, Hong Kong, Singapore, South Korea, and Taiwan. “Emerging markets” include China, India, and Southeast Asian markets (including Indonesia, Malaysia, Thailand, and Vietnam).
The report is a collaborative effort by Henri de Combles de Nayves, Alex Kimura, Bernhard Kotanko, Sumit Popli, and Angat Sandhu, representing views from McKinsey’s Insurance Practice.
