In this special episode of the Broker Feature, we speak to Joshua Lynch, Regional Market Development Manager (Asia Pacific, Middle East & Africa) from Lloyd's. Although Josh isn't a Broker, he works closely with brokers and underwriters to develop, execute, and identify new business strategies to provide clients with tailored insurance solutions that meet their unique needs.
Watch Episode 3 here:
Josh: I've been working in the insurance industry for 11 years. So that makes me feel quite old now. I’ve spent 8 years at Lloyds, and I was at a different company for three years prior to that. I started off in the London office, spent 3 years working there, and then moved over to Singapore at the start of 2018 with a regional role overseeing and promoting our coverholder network and our underwriting agent network. Then I moved over to Hong Kong for about a year and a half, and then I recently returned to Singapore in August to lead our market development in the APAC-MEA region, so that's Asia Pacific, the Middle East, and Africa. Basically, Singapore is sort of like our regional hub, responsible for many of our territories.
Could you give us a brief overview of the insurance market in Asia?
Josh: Difficult question to answer. I think a lot of people are currently labelling the market as a 'hard market’. A hard market is basically where there is less supply of insurance, less capital, and/or increased demand. So we'll see an increase in rates and the price of insurance. So we've definitely seen that over the last couple of years in certain classes. We've seen the increase in rates in marine globally increase slightly. In this part of the world, in Asia Pacific, we've definitely seen increased rates in financial lines over the last year or so. W & I insurance, M & A insurance, and definitely cyber insurance over the last few years as well.
For those classes, the increase in rates may be due to the increase in demand, the lack of capacity, or the lack of insurance supply. But for cyber, it's probably a little bit different. I think the increase in prices in the cyber insurance market has largely been down to an increase in the amount of claims, increasing volume of claims, and increasing the value of those claims. Over the last few years, we've seen an increased amount of cyber attacks and, obviously, insurance claims because of that. So that would obviously reflect in higher prices. So yeah, we've definitely seen that over the last few years in cyber. And then more recently, definitely due to a hard market, we've also seen an increase in prices in the treaty market. That is mainly due to the reduction in supply of reinsurance globally, which has increased those prices. So some seed and insurance companies are either having to pay higher prices for their reinsurance, increase their excess, or have less coverage than they did the previous year, or maybe even a combination of all three. So yeah, it's been difficult in the treaty market over the last few months, and we've definitely seen that at Lloyd's as well. It's an interesting time in the insurance market in several respects. At Lloyd's, we've seen an increase in rates over the last couple of years, but we've definitely also seen an increase in risk as well. So exposure increases. So it's real growth, not just price inflation or increases in the gross written premium over the last couple of years. At Lloyd's in Singapore, we've grown around 20% in 2021 and 2022. So yeah, large increases after what has been quite a difficult 2020 for us and for most of the insurance market. We’re hoping or forecasting that we'll grow around 20% in 2023 as well. Definitely on the insurer side, we're seeing large growth.
What would you attribute the hardening of the insurance market to?
Josh: Depending on the client or policyholder, it will depend on what changes are made. So, for example, the price may increase for the same amount of coverage as the previous year, or there may be an increase in exclusions, an increase in excess, or a reduction in coverage. I think that depends on exactly what the client wants and on the insurance broker working on behalf of their client, trying to get the best deal for what is best for their clients. So our underwriters at our syndicates here have seen increased prices for some policy holders. But yeah, there's been a reduction in coverage or increase in excesses depending on what the client wants.
What are some of the major trends and challenges facing the insurance industry in Asia?
Josh: We've had over the last few years quite a few challenges all in quick succession, so obviously COVID, which we're not completely out of the woods yet. I mean, China has just sort of slightly opened up now over the last couple of months coming out of COVID Zero whilst the West have basically gotten rid of their restrictions for about a year and a half now, haven't they? That was a big challenge in 2020 and in this part of the world we're still feeling it as well. Places like Hong Kong, as well, are just coming out of those restrictions. So that was a large challenge and still is, but hopefully we're out of that now, or coming close to. The volatility and increased frequency of these types of events—COVID being one of them, the Ukraine War at the start of this year, trade tensions—we've seen increasing trade tensions over the last sort of five years, especially with China and the US; Brexit; over the last sort of five or six years; these types of things, I don't think we really saw coming. Maybe there were warning signs there, but I don't think we were able to rest on the assumptions that we used to have. These things seem to come out of the blue and increase in frequency. For example, if the Ukraine war at the halfway point of 2022, we'd reserve just over a billion pounds. So probably about 1.2 billion USD for claims relating to the Ukraine war. That's something that, maybe a few moments before that started, we didn't really see happening. So that's a huge challenge for us and the whole market. All those things that I had mentioned–the Ukraine war, COVID trade tensions, Brexit–probably all have had an effect on inflation as well, which we've seen over the last nine months or so, increased by oil prices, food prices, monetary policy changes on top of that as well.
A lot going on over the last few years probably compared to the previous few years. So hopefully it settles down over 2023 and 2024.
How has the COVID-19 pandemic affected the insurance market?
Josh: One of the biggest changes and challenges is working from home. I mean, that's completely changed our industry—something that we've adapted really well to and something that the insurance market as a whole—the digitalization of placing risks, paying claims, and so on—we were well prepared for. Lloyd’s were well prepared for that. We invested in a placing platform, the PPL placing platform limited, a few years before covid, so that was up and running and ready to go. We didn't need to have paper placement or stamping like we used to. But that was definitely a huge challenge, which we're still having to deal with now. So maybe getting people back into the office is probably the challenge. How do we give people the flexibility that they're now used to and what they want with their daily lives and their work-life balance? How we remain productive with things like collaboration may be lost with people working from home more.
It's definitely a challenge and a benefit from COVID-19. It's great to have the flexibility, but maybe we lose something by working from home a couple of days a week. I mentioned earlier that COVID-19 was very difficult from a claim point of view. We had over a billion COVID-related claims globally at Lloyd's. So it’s been quite a difficult year for us, which went into 2021 as well. However, as I mentioned earlier, we've grown by around 20% in 2021 and again around 20% in 2022. So, those challenges which were pretty difficult to get over back in 2020. I think we've sort of gotten our heads out of the woods now on many of those challenges.
Where do you see the market going?
Josh: I would say more growth rate increases in those classes mentioned earlier and definitely growth in risk areas and exposure areas as well. We are hoping to grow around 20 to 25% in 2023 from a Singapore point of view. From a class specific basis–Lloyd's is the largest cyber underwriter globally and we write about 20% of all cyber risks. Our estimate is that the whole market is worth about 12 billion GBP, and we expect that to triple by 2030—a huge market with plenty of opportunity over the next five to seven years.
Lloyd's is a big supporter of innovation for cyber solutions, allowing us to keep pace with ever-changing cyber security threats. Cyber is a big one for 2023 and the subsequent years. Outside of cyber, the real growth areas are probably the ones I've already mentioned as well—financial lines, marine, treaty mainly on the rate side. In terms of products as well, we've seen an increased amount of parametric products. So we've got a couple of coverholders in this part of the world who have parametric insurance products, one in New Zealand for earthquake insurance. So if certain triggers are met for the magnitude of an earthquake in New Zealand, the coverholder of the underwriting agent and the syndicate that provides capacity will automatically pay out. There's no need to assess any damage or any of the claims themselves. So faster payment means reduced costs of assessing those claims, so we can provide a better service to our customers. Similarly, in Australia as well, we've got a parametric product underwritten by a coverholder in a similar vein, underwriting floods in Queensland. So if the floods are a certain severity or the windstorms a certain severity, they're automatically paid out. And we have many of those products coming from our innovation lab in London as well. The most recent one we've had is cyber again. If there's downtime on a cloud server for a certain amount of time, there'll be a certain amount of payout depending on the amount of time the server is down for. So if it's one hour, it'll be x amount. If it's two hours or two days, it'll be x amount of claim payout just automatically.
So, we're seeing lots of innovation in those areas as well to provide a better service to our policyholders. So, hopefully, more of that in 2023.