Within Asia, structural reforms have also increased the importance of domestic sources of growth. Asia’s rising domestic demand needs to be supported by the development of a much broader range of financing options for healthcare, education and retirement. This will result in the reduced need for high levels of precautionary savings, which in turn will contribute towards strengthening domestic demand. In addition, with rapid industrialisation, Asia is also experiencing an unprecedented rate of urbanisation. Between 1990 and 2010, Asia-Pacific’s urban population increased from 29 percent to 43 percent. It is projected that another 1.1 billion people will be living in cities over the next 20 years, increasing the urban population to 55 percent by 2030. The region will also be faced with an ageing population in the years ahead, with Asia accounting for 62 percent of the global elderly population by 2050. This transition is already experienced in countries like Japan, South Korea and Hong Kong. But other countries in the region are also converging at a fast rate. Fundamental reforms in social and economic policies are now being pursued by most governments in the region to avert the risk that Asia’s population will “grow old before growing rich”. Such reforms seek to achieve higher levels of income needed to sustain adequate provisions for welfare as the effects of ageing on the workforce and as rising healthcare and pension costs begin to set in.
Going forward, innovations in insurance solutions will also need to take into account the higher regulatory expectations for more transparency, stronger financial buffers against unexpected losses and the requirements to do more to ensure that products offered are suitable to the different customer segments. Regulators will also be applying a much higher level of scrutiny on complex insurance products that increase risks to financial stability. Simplifying insurance products and institutional structures, and creating a strong risk culture in which managing risks is a shared responsibility within institutions, will be important goals to ensure that the risks facing an insurer are well understood and effectively managed. The third point concerns the far reaching implications of climate change for the insurance industry. This also calls for the industry to pursue a different path from what history has shown in determining the growth strategies for the future. Climate change has been described as one of the biggest risks to the insurance industry. The cost of climate change, without action, is estimated to be at least 5% of global GDP each year, not to mention its significant impact on human society. Some of the effects of climate change are already being felt in increased frequency and severity of weather related natural disasters, water scarcity and crop failures. Asia’s exposure to climate change effects is also anticipated to increase. In 2011, Asian countries accounted for 70 percent of 380 billion US dollars in economic losses from natural disasters, however only a quarter of that was insured.