Insurance Companies in Asia Face Rising Claims Costs
Although Asia's casualty insurance market has significant room for expansion, insurers are grappling with rising claims costs, long settlement times, and new liability risks. According to a Marsh report, China accounts for about 70 percent of Asia's total casualty premium.
Kathmandu – In recent times, insurance companies in Asia have been facing rising claims costs. According to a Marsh report, there is ample room for expansion in Asia's casualty insurance market, as insurance penetration is low. However, insurers are under pressure from rising claims costs, long settlement times, and new types of liability risks.
In Asia, total casualty insurance premium averages about 0.1 percent of GDP, while in the US it is about 0.5 percent. According to Marsh's September report, China accounts for about 19.8 billion dollars of casualty premium, representing about 70 percent of Asia's total premium.
The report does not include motor insurance and divides the casualty insurance business into general liability, workers' compensation or employers' liability, and financial lines. Demand for general liability coverage is also increasing in construction, building materials, logistics, consumer goods, and technology.
Marsh also sees opportunities in financial lines, as companies face increasing regulatory and governance requirements and growing cross-border investment. Except for South Korea and India, the loss ratio in Asia is generally below 55 percent, while in South Korea and India it is above 60 percent.
However, settling casualty claims can take 4 to 8 years and in some cases 20 years or more. This makes it difficult for insurers to determine the final cost of claims and build appropriate reserves, especially when inflation and other loss trends are changing.
In Asia, claim frequency is generally stable or slightly increasing, but individual claim costs are rising. Rising labor, material, and medical costs are contributing to this trend, while geopolitical and economic uncertainty adds pressure.
Marsh has noted that it has so far seen limited evidence of a significant increase in litigation costs as seen in the US. However, Asian companies with operations, exports, director and officer exposures, or products sold in the US may still face large settlements and jury awards.
Insurers in Asia are seeing claims costs rising faster than general inflation in some cases. Additionally, strong capacity and competition among insurers are leading to continuous declines in general liability and financial line insurance rates in most parts of Asia. Some insurers are focusing more on pricing discipline or more complex liability risks for businesses with US connections.
Casualty losses remain a concern. Previous product liability incidents in Asia – such as Takata airbags, Samsung phone batteries, and Takeda's diabetes drug Actos – have each resulted in claims of more than 1 billion dollars.
Industrial damage, transportation accidents, environmental damage, and corporate governance failures can also lead to large claims. New and emerging risks include:
- Artificial intelligence (AI)
- Electric vehicle batteries
- PFAS pollution
- Climate-related liability
- Cyber-physical risks
- Microplastics
According to Marsh, casualty catastrophe models are still less developed than property catastrophe models. However, their Vista platform now covers more than 300 scenarios. –Agency