The adoption of electric vehicles is one of the most prominent challenge the (re)insurance industry faces when it comes to motor insurance. On the claims side, new patterns and new types of claims have emerged, requiring insurers to adapt their operations and develop adequate responses. Munich Re’s Messrs Thibault Imbert and Damiano Massimi elaborate. In recent years, e-mobility has achieved a breakthrough in many markets around the world. The question is no longer if electric vehicles (EVs) are coming and will replace traditional powertrains, traditionally referred as internal combustion engines (ICEs), but rather how they are coming and when they will take over the largest share of the global powertrain mix. EVs bring new challenges The (re)insurance industry plays a vital role in this transformation. However, the development of this new type of vehicle generates new challenges for the industry, particularly on the claims side where different patterns are emerging, alongside new types of claims. A clear set of actions is required to face these challenges successfully: Understanding the fundamental differences between EVs and ICEs; highlighting the impact of these differences on the motor insurance landscape, particularly on the claims side and developing the appropriate response. EV structurally differ from ICE The differences between EVs and ICEs are often perceived as a simple difference in powertrains: The combustion engine used to move the car is replaced by an electric motor and the tank by a battery. However, the differences are wider. In ICEs, engines are generally easier to access and there is more experience in the market regarding how to repair/maintain them. Batteries tend to be more difficult to reach since they are usually tightly sealed to protect them from dust and humidity. Furthermore, batteries and electric motors are not being repaired yet in case of damage, since the OEM prescriptions indicate motors or batteries to be replaced. From a technology perspective, the battery is considered the most advanced part of an EV and it is generally assumed to represent 30% to 40% of the price of the car, especially for more affordable models. Finally, the proportion of new materials and alloys is higher for EVs than for ICEs. New claims patterns and types emerge All these differences significantly impact the type of insurance claims which can occur. Analyzing EV-specific claims on the Chinese market highlighted a few aspects in this regard. An increase in claims frequency, explained by the following: EVs tend to have higher acceleration power than ICEs, as the battery has a sudden power delivery to the wheels, comparable to sports cars. Many drivers, not used to it, struggle to adapt. Secondly, more and more governments are offering subsidies and incentives to support EVs adoption. Consumers can access bigger vehicles, compared to ICEs. Drivers not used to the new size, cause more dents and bumps. Finally, a shift in the types of drivers has been identified for EVs in comparison with ICEs. EV owners tend to be younger and less experienced, with drivers between 18 and 30 overly represented as EV owners. Moreover, for households with more than one car, EVs are mainly aimed at urban usage by the youngest members of the household. Severity of claims is higher for EVs. More technology scattered throughout the car and new alloys make repair more complicated and spare parts more expensive. The probability of a material damage claim leading to a total loss is higher for EVs. The high price of the battery, spare parts and labour may lead to repair costs exceeding vehicle value. If the battery suffers damage, it is usually replaced as most OEMs currently do not force the business for refurbished batteries within clear MOD and MTPL claims. This can lead to an increase in the overall costs. Labour costs tend to be higher. Few garages are capable of correctly repairing EVs and interventions tend to be more complicated. The proportion of labour costs can amount to 30% of the total repair for EVs. Given the complexity of repairs, claims are addressed to official dealers instead of independent shops much more frequently (e.g.: three-quarters of EV claims in China are directed to dealer garages). Finally, some EV models have their charging port at the front. In case of a rear-end collision (quite common in city driving, where EVs are mostly used), the complexity and the cost of the repair increase. Fire risk is also an important topic for insurers. EVs are often associated with a higher fire risk. Figures from the US market shows that only 25 out of 100,000 insured pure EVs (excluding any hybrid vehicle) did catch fire, compared to 1,530 for ICEs (1 to 60 ratio). However, when it comes to severity, EVs tend to burn longer, especially due to the battery, a big flammable source of energy. Completely extinguishing an EV fire and cooling down the battery requires more than 100,000 litres of water compared to 2,000-4000 litres for ICE). In addition to the traditional motor claims (e.g. third-party liability, own damage) new risks, and therefore possible claims associated, have emerged. Charging a car implies the use of dedicated cables and a private charging station (wall box) which can be damaged, stolen or a source of liability. Running out of charge while driving is a risk identified as different from running out of petrol, be it on the frequency or severity aspect, impacting the use of the assistance coverage. As many of these cars are connected, cyber claims also have to be considered, in case of an attack or of issues with the software. Insurance must adapt to these changes The fast adoption of EVs is having an impact on motor claims and requires (re)insurers to take a proactive approach, focused on three pillars: Product: Developing an EV product offering, with dedicated wordings and coverages, to control and monitor EV risks with greater focus and transparency. Pricing: Quantitatively assessing the riskiness of EV models and adapting the commercial rating structure to ensure an adequate level of premium in line with the underlying risk. Claims: Detailed claims monitoring and development of dedicated partnerships, with both assistance providers and garage networks to ensure that claims costs are kept to an acceptable level. Mr. Thibault Imbert is a senior insurance solutions manager and Mr. Damiano Massimi is an engagement manager with Munich Re. Source: asiainsurancereview.com

Property reinsurance pricing on loss free risk and CAT programmes in ASEAN and China varies from +15% to +20% risk adjusted, and even larger increases are seen in Taiwan and Korea, says Gallagher Re in its January 2023 "1st View Market Report" released on 1 January. The report, outlining market conditions at key reinsurance renewal seasons—1 January, 1 April and 1 July—which are based on the real-time observations of Gallagher Re’s brokers, also says that there has been an inconsistent application of deductible increases, primarily imposed on loss impacted placements. Other findings were: All peril coverage remains a common feature and existing hours clause wordings have been largely maintained. Rarely, shortfall terms have been imposed on proportional and excess of loss contracts. Proportional placements renewed with limited changes; commissions changed by low single digits. However, there was very limited additional capacity. Regional Retro deductibles increased significantly (usually dropping first layers) and pricing was up across the board, however, access remained to worldwide capacity and coverage. Risk covers with existing CAT coverage were renewed with no additional restrictions. Pre-paid reinstatements moved to paid for both risk and CAT contracts. The January 2023 report indicates the conditions in specific markets in Asia, including: Indonesia In Indonesia, financial issues with domestic reinsurers resulted in some cedants shifting capacity to overseas reinsurers. Local lead reinsurers pushed through an overall increase in pricing and tightening of proportional terms (less inward facultative capacity) whilst also reducing reinsurance commission. Excess of loss pricing increases varied considerably depending on clients and results—in some cases deductibles increased albeit not in a meaningful way. South Korea In South Korea, significant loss activity over the past 12 months (both risk and event) resulted in a meaningful hardening of pricing and terms with several reinsurers exiting the market entirely. The appetite for proportional reduced substantially with reinsurers only willing to offer quota share support going forward (most surplus structures disappeared). This renewal has seen the introduction of broad sliding scales of commission, loss participation clauses and loss ratio caps. There was a new introduction of the co-insurance limitation clause which limits the treaty capacity in case of co-insuring an underlying risk with one or more primary insurers. Excess of loss pricing increases varied considerably depending on individual contract loss position. Malaysia In Malaysia, there was a similar market reaction to that seen at 2022 1 April and 1 July renewals with 1 January buyers renewing for the first time post the Malaysian flood. A meaningful reduction in reinsurance commission on proportional was seen, with an average of -9% reduction (between -3% to -16.5% reduction) and tightening of retention tables across all cedants. Loss participation clauses are now commonly in place – most triggered at 100% loss ratio with cedant participation between 30% and 50%. Excess of loss pricing increased and was dependent on loss record. Overall, deductibles remained unchanged although some cedants chose to have them increased to manage costs. Source: asiainsurancereview.com

2023 will likely see an increase in insurance consolidation, particularly among life insurers, in the Asia region, according to a commentary by Ms. Joyce Chan, a partner at the global legal firm Clyde & Co in Hong Kong. A combination of difficult investment conditions and an increased regulatory focus on insurer solvency, notably in Hong Kong, will drive interest in M&A this year and beyond, says Ms. Chan in a blog that is part of Clyde & Co’s “Insurance 2023 – the year ahead” series of market insights. In Hong Kong, for example, the life insurance market is made up of large global players and a number of regional, local companies. Many of those smaller, regional companies are likely to become potential merger and acquisition targets as economic conditions, particularly rising interest rates, make asset investment returns more challenging. On top of that, the upcoming risk-based capital (RBC) regulatory regime that is anticipated to come into force for insurers in Hong Kong in 2024 is prompting many life insurers to examine their solvency requirements. The three-pillared RBC rules are being developed in accordance with the International Association of Insurance Supervisors’ principles and will be similar to other global standards such as Solvency II in Europe and the IAIS’ Insurance Capital Standards. The RBC regime will certainly be a catalyst for companies to re-examine their strategies and solvency positions. And as well as an increase in M&A, the RBC rules will probably prompt some life insurers to consider restructuring their legacy books of business either through loss portfolio transfer reinsurance solutions or portfolio transfers. To date, loss portfolio transfers have not been that commonly used in Asia, but as companies ready themselves for new solvency requirements and grapple with increasingly testing investment conditions, an increase in interest in these types of transactions is expected in 2023 and beyond. Source: asiainsurancereview.com

More foreign companies are likely to enter the insurance market in the Philippines as the deadline looms for the final tranche of required capital increases -- a move that would impact small local insurers. The Philippine Insurers and Reinsurers Association (PIRA), the umbrella organization representing the interests of the non-life insurance industry in the country, said a number of foreign firms had expressed interest in entering the Philippines, reported The Philippine Star. “We were approached by Koreans for M&As. They represent Koreans, Thai, and Japanese capital,” PIRA executive director Michael Rellosa told The Star. Under the Insurance Code, existing insurers must have a net worth of at least PHP1.3bn ($23.3m) by 31 December this year from the current required minimum level of PHP900m. Unfortunately, not all insurers will be able to comply with the PHP1.3bn requirement, especially as the COVID-19 pandemic trimmed the net worth of insurance companies in the past two years. A new insurance code was signed into law in the Philippines in 2013 under which capital requirements for insurers were increased every three years until 2022. The required net worth was PHP250m in 2013, PHP550m in 2016, PHP900m in 2019, and PHP1.3bn in 2022. Mr. Rellosa said the number of PIRA’s members is down to 56 at present from 130 and this could be slashed further to around 40 by next year. Source: asiainsurancereview.com

Southeast Asian insurance regulators have agreed to create a task force to conduct a collaborative study on ASEAN sustainable insurance product development, according to Dr Suthiphon Thaveechaiyagarn, the secretary-general of Thailand's Office of Insurance Commission (OIC). He revealed this as the chairman of the 25th ASEAN Insurance Regulators’ Meeting (AIRM) in Bangkok in December 2022. Thailand was the host of the AIRM as well as the 48th ASEAN Insurance Council (AIC) Meeting 2022 held from 6 to 9 December which culminated in a Joint Plenary Meeting by the regulators and the private sector, with the theme: “Strengthening ASEAN Insurance Ecosystem Towards Digitalization and Sustainability”. Outlining key progress in ASEAN Insurance cooperation, Dr Suthiphon highlighted the following: 1. Acceleration of sustainable insurance Regulators will identify and monitor risks and opportunities associated with environmental, social and governance (ESG) issues. They will also push for more efforts to initiate more concrete approaches to accelerate sustainable insurance. One way of doing this is to survey the available sustainable products and by sharing good practices on measures and incentives. In particular, the following actions will be done: acknowledge the significant principles of an implementation plan for the ASEAN Economic Cooperation (AEC) Circular Economy Framework; create a task force to conduct a collaborative study on ASEAN sustainable insurance products development; provide investment incentives; issue guidelines related to sustainable finance; set up the technical working group on sustainable insurance and ESG, and develop an ESG data platform. The AIRM also acknowledged the AEC’s Implementation Plan from 2023 to 2030 by encouraging the development of new insurance products. In particular, these new products are aimed to mitigate climate risks for small & medium-scale farms or producers; and other new products that will reduce transaction risks and/or costs for circular products. 2. Insurance supervision The regulators will exchange information on recent developments in digitalization and sustainability efforts. They will respond to digitalization and sustainability by: establishing the Cyber Resilience Assessment Framework (CRAF); strengthening collaboration on cyber threat intelligence at the regulators’ level and the national level; issuing guidelines on the adoption of regulatory sandbox framework for pilot agricultural insurance; issuing guidelines on foreign-currency-denominated investment and insurance companies; adopting an Own Risk and Solvency Assessment (ORSA) framework; and acknowledging the 2022 ASEAN Surveillance Report (AISR) and tasking the ASEAN secretariat to conduct training programmes on data compilation. 3. Climate risk The ASEAN Disaster Risk Financing and Insurance (ADRFI) platform is currently in Phase 2 (2019 –2023). The regulators will encourage ASEAN members to share data on disaster risk that would help mitigate the impact of climate change. 4. ASEAN Scheme for Compulsory Motor Vehicle Insurance (ACMI) There was progress as well as key challenges in the implementation of the ASEAN Blue Card Scheme. The AIRM has supervised and guided the implementation of the ACMI through the ASEAN Council of Bureaux (COB), one of the AIC’s working groups. ASEAN Insurance Council In his turn, AIC secretary-general Mr. Christian Wanandi said that the AIC Working Committees were actively addressing sustainability and climate change concerns. As presented by ASEAN Insurance Education Centre (AIEC) chair Michael Rellosa, the Committee is incorporating the Module on Climate Risk Management and Environmental Risk Management in the ASEAN Professional Insurance Diploma (APID) to be launched in 2023. The ASEAN Reinsurance Working Committee (ARWC), represented by chairman Zainudin Ishak, will embark on an ASEAN ESG Scheme in support of the ASEAN governments’ renewal energy policy. The ARWC believes that the insurance industry plays an important role in the transition towards a low-carbon economy. The ASEAN Natural Disaster Research and Works Sharing (ANDREWS), chaired by Heddy Agus Pritasa, has made the first step in addressing regulators’ request for ASEAN member states to share data on disaster risk that would help mitigate the impact of climate change. The members of ANDREWS submitted their reports on Sovereign Catastrophe Management in their member states. They also shared agricultural insurance reports of their respective countries. ASEAN COB chairman Wasit Lamsam reported that the Council had digitalized the motor vehicle insurance system at the border by adopting the E-Blue Card Scheme. The ASEAN COB seeks support from the regulators in raising public awareness, recognition and compliance with the Blue Card scheme. Further, it seeks the support of the regulators to enforce the E-Blue Card as a verification document at border checkpoints and encourage insurers to integrate with the ACMI system. Thailand, as the ACMI administrator, has been assisting the national bureaux of ASEAN member states in integrating their system with the online purchase of motor vehicle insurance on the ASEAN COB website: https://www.aseancob.org/purchase-compulsory-motor-insurance-in-asean Finally, the newly-formed ASEAN Takaful/Retakaful Working Committee (ATRWC) was introduced. Its chairman Mohammad Nizam Yahya said that the Committee would serve as the official ASEAN channel for cooperation among takaful Associations and takaful and retakaful operators in the region. The development of takaful and retakaful is in various stages within ASEAN member states at present. The ASEAN Insurance Council (AIC) was established in 1978 as the main regional platform for insurance professionals to network and share their knowledge and expertise in various areas of the insurance business. The ASEAN Insurance Regulators’ Meeting (AIRM) was established in 1998, at the height of the Asian Financial Crisis, to serve “as a platform to strengthen insurance cooperation in the development of insurance regulatory and supervisory frameworks and research and capacity building through the ASEAN Insurance Training and Research Institute (AITRI).” Source: asiainsurancereview.com

Insurers will continue to have to deal with regulatory and financial reporting changes, specifically the advent of IFRS 17 and ESG reporting, says Mr. Brandon Bruce, ASEAN Insurance Leader at the global professional services firm EY. Outlining the outlook for the insurance sector for 2023, he said, “Some of the main issues impacting insurance companies in Southeast Asia include rising interest rates, which will potentially affect premium income growth in 2023, as well as rising inflation and pressures from the cost of medical supplies and other goods increasing the cost of claim payouts.” Data and technology He added, “The fact that more and more insurers in the region are looking at technology, data and analytics capabilities as enablers to modernize and push their businesses forward is definitely a bright spot to look forward to.” Mr. Bruce also said, “As companies look to keep costs under control, we’ll likely see them putting additional focus on ensuring more seamless services by enabling technology across the delivery chain, as well as re-strategizing the distribution base by enriching product offerings to the customer directly and via digital sales portals. Insurers will also maintain stringent claims management and controls and implement new tools to understand where the leakages are and plug them by understanding the drivers and main causes creating them, introducing better analytics capabilities and tightening processes. “Looking ahead, it will make a lot of sense for insurers to consider investing for a stronger digital presence. However, the problem with digital — sexy as it may sound — is that you must get the model right, partner with the right ecosystem providers, provide the right solutions and the right product suite that will cater to the clients’ needs.” M&A activities in 2023 Mr. Bruce predicted, “M&A in the industry will continue, with emphasis on stronger incumbents or new market entrants building a solid business in this part of the world, either by acquiring legacy businesses or via joint venture tie-ups.” Source: asiainsurancereview.com

There is growing concern among industry executives about large-scale strikes The chief executive of one of Europe’s biggest insurance companies has warned that cyber attacks, rather than natural catastrophes, will become “uninsurable” as the disruption from hacks continues to grow. Insurance executives have been increasingly vocal in recent years about systemic risks, such as pandemics and climate change, that test the sector’s ability to provide coverage. For the second year in a row, natural catastrophe-related claims are expected to top $100bn. But Mario Greco, chief executive at insurer Zurich, told the Financial Times that cyber was the risk to watch. “What will become uninsurable is going to be cyber,” he said. “What if someone takes control of vital parts of our infrastructure, the consequences of that?” Recent attacks that have disrupted hospitals, shut down pipelines and targeted government departments have all fed concern about this expanding risk among industry executives. Focusing on the privacy risk to individuals was missing the bigger picture, Greco added: “First off, there must be a perception that this is not just data . . . this is about civilization. These people can severely disrupt our lives.” Spiralling cyber losses in recent years have prompted emergency measures by the sector’s underwriters to limit their exposure. As well as pushing up prices, some insurers have responded by tweaking policies so clients retain more losses. There are exemptions written into policies for certain types of attacks. In 2019, Zurich initially denied a $100mn claim from food company Mondelez, arising from the NotPetya attack, on the basis that the policy excluded a “warlike action”. The two sides later settled. In September, Lloyd’s of London defended a move to limit systemic risk from cyber attacks by requesting that insurance policies written in the market have an exemption for state-backed attacks. At the time, a senior Lloyd’s executive said the move was “responsible” and preferable to waiting until “after everything has gone wrong.” But the difficulty of identifying those behind attacks and their affiliations makes such exemptions legally fraught, and cyber experts have warned that rising prices and bigger exceptions could put off people buying any protection. Greco said there was a limit to how much the private sector can absorb, in terms of underwriting all the losses coming from cyber attacks. He called on governments to “set up private-public schemes to handle systemic cyber risks that can’t be quantified, similar to those that exist in some jurisdictions for earthquakes or terror attacks”. In September, the US government called for views on whether a federal insurance response to cyber was warranted, which could be part of, or outside, its current public-private insurance programme for acts of terrorism. Source: ft.com

ASEAN insurers to play a key role in decarbonizing the region's economy Malaysian Re together with Faber Consulting launched the 6th edition of the ASEAN Insurance Pulse 2022 at the 48th ASEAN Insurance Council Meeting, held in Bangkok, from 6 to 9 December. This year's edition focuses on the decarbonization of ASEAN economies and its implications for the insurance industry. The ASEAN Insurance Pulse 2022 highlights the contribution of the region’s insurers to climate adaptation and resilience building. The industry plays a prominent role in promoting climate action, ranging from its own asset management and underwriting to supporting clean technologies and changes in its own operations. Reflecting on the different activities and stages that the ASEAN insurers assume to contribute to the transformation of their economies, the ASEAN Insurance Pulse surveyed the region’s risk carriers and intermediates on the relevance of the Paris accord, how the decarbonization of the ASEAN economies shapes their strategies and operations and how they measure and disclose their progress. ASEAN insurers are well aware of the Paris accord. The region has experienced a steady increase in losses resulting from climate change. Most ASEAN insurers already have taken strategic steps to incorporate the Paris accord or ESG into their operations. However, a general taxonomy how to classify assets and liability according to a clear ranking is still being developed in most markets. Regulators in ASEAN countries play an important role in integrating ESG or decarbonization objectives into insurers' operations and reporting. Click here to access the research.

By Michael F. Rellosa THE new year, still in its infancy, is witnessing a looming battle between two camps within the insurance industry: between those who espouse maintaining the tariff regime in rating risks to be insured and those at the opposite end, espousing a nontariff or free market regime. For the uninitiated, tariffs are fixed price lists that determine the premium rates, which insurance companies can charge consumers for insurance products sold by them. When premiums are tariffed, insurance companies are not allowed to vary the prices chargeable on an insurance policy (fixed price). The opposite therefore is the nontariff or free market regime where rates vary according to how the insurer assesses the risk it is to take on. There are pros and cons for each camp, the question is what would be better for the insurance stakeholders, foremost of which are the insureds and the insurers, given the current setting. Those who want to keep the status quo, or the pro-tariffs, maintain that there exist two potential rationales for the regulation or control of insurance prices. The traditional explanation for the need to control insurance premium rates is due to costly information and solvency concerns. This view shows that the insurers’ incentive to incur excessive financial risk and even engage in “go-for-broke” strategies may result in inadequate prices. The danger then is that consumers might buy insurance from carriers charging inadequate prices without properly considering the greater financial risk involved. This leads to poor incentives for solvency safety which in turn could induce a wave of “destructive competition” in which all insurers are forced to cut their prices below costs to retain their market positions. The solution on hand is to reintroduce and strengthen the system of uniform prices developed by an industry-rating organization subject to regulatory oversight to prevent excessive prices. The other side, however, maintains that there are enough safeguards in place to guard against “destructive competition” such as the Philippine insurance industry’s being under the risk-based capitalization regime where the measurement of the minimum amount of capital appropriate for an insurer to support its overall business operations depending on and in consideration of its size and risk profile. It therefore requires a company with a higher amount of risk to hold a higher amount of capital. If a company then goes beyond what is deemed safe and prudent, it will be required to put up a commensurate amount of capital — a disincentive to “destructive competition.” However, in the Philippines, though we are already governed by the RBC, current laws muddle the situation as it dictates the old solvency requirements on top of the RBC, resulting in confusion. This is a case for the need to update the Insurance Code to keep up with global financial and regulatory developments. This then becomes a case of when you tinker with something, you would have to necessarily tinker with the other areas, as well. This would probably give the impression of a Gordian knot before us, and it is. There are numerous side issues of equal importance which would likewise have to be addressed. The arguments stated above are just the tip of the iceberg. What is needed is for the industry and regulator to work hand in hand to rectify a situation that by a combination of culture, market characteristics, market’s state of maturity, opposing agendas, outdated methods, laws and regulations topped by benign neglect has morphed into a monster. We can be hopeful though, as there is a realization within the Industry and among the various stakeholders that things would need to change, and moves have begun to address this. What also offers hope is the fact that the regulators are willing to listen and cooperate with the industry players to find the best and most efficient way out of this quagmire. This is of utmost importance as without this badly needed cooperation and open lines of communication, the Gordian knot just gets tighter. All therefore bodes well for the insuring public, correct, risk-appropriate premium rates and a strong vibrant and more importantly a resilient and sustainable insurance industry that is strong enough to withstand loss shocks brought about by catastrophic risks, which seem to have become a rather common occurrence. Source: manilatimes.net