Product Family

By Zoe Xie, Client and Distribution Leader, Asia, AXA XL, a division of AXA

As rates trend upward, new risks emerge, and traditional risks become more severe, Asian insurance buyers face a set of diverse challenges. Zoe Xie, AXA XL’s Client and Distribution Leader for Asia, offers her views on how clients can adapt to these new realities.

Recently, a colleague and I were discussing the varied challenges confronting Asian insurance buyers, and they mentioned an expression I had not heard before: “Good? Fast? Cheap? Pick two.” As I discovered, this saying reflects the inevitable reality that buyers must be prepared to trade-off at least one desirable attribute in favour of other, more compelling features. In fact, graphic images of this expression – I Googled it out of curiosity – often show the three traits as a Venn diagram with the space where the three circles overlap labelled “impossible,” or “this doesn’t exist.”

Until now, I expect many insurance professionals across the Asian region – clients, intermediaries, re/insurers and service providers – would have disputed this notion. In their experiences, most traditional risks could be covered by market standard policies issued quickly and at a low rate. That reality was driven, at least in part, by the fact that Asia is home to the fastest-growing economies in the world, and Asian companies expanding rapidly into new territories and industry sectors pushed the industry to cover their increasing exposures with low-cost policies issued right away. And insurers were more than happy to help enable this wave of growth and expansion.

However, for a variety of reasons – including upward pressures on rates, strategic moves within the insurance industry, and a changing and more complex risk landscape– I believe that “good-fast-cheap” has become less and less tenable. Thus, Asian clients and their intermediaries that assume it’s “business as usual” should be prepared to trade-off at least one of these attributes.

More challenging market conditions

Insurance is one of the very few industries in which the cost of the raw materials – in this case, claims payments – is only known after the product is sold. And while numerous factors influence the rates for insuring specific risks, if the industry’s macro-level assumptions about its raw material costs are significantly understated, that’s naturally going to create an impetus for raising rates, selling something for less than it takes to produce is not sustainable.

In 2017, natural disasters triggered USD 340 billion in economic losses internationally and USD 138 billion in insured losses; it was the costliest year on record for insurers. 2018, in turn, was the fourth-costliest year for insurers since 1980; economic losses totalled USD 160 billion and half of these – USD 80 billion – were covered by insurance.

Asia was the region most heavily impacted by disasters in 2018, with overall losses of USD 59 billion, or 37 percent of the global total. In Japan, tropical storms Jebi and Trami caused widespread destruction while extreme rainfalls produced damaging flash floods and landslides in Kyoto, Osaka and Hiroshima. And Indonesia was again hit hard by tsunamis that claimed thousands of lives and led to property losses in the billions.

In previous market cycles, re/insurance capacity would be constrained in the aftermath of these record-making losses as investors pursue less volatile and more profitable opportunities. In this case, re/insurance capacity has remained adequate, propelled in part by a surge in alternative capital like cat bonds, industry loss warranties (ILW) and collateralized reinsurance. Nonetheless, the capital markets are increasing their ROI targets. In response, re/insurers around the world, including in Asia, have been compelled to raise rates, although the magnitude of the increases varies considerably by line-of-business, occupancy, industry segment and geography.

Also, these extreme catastrophic losses are not the only factor contributing to higher rates. Regulators in many jurisdictions, including Hong Kong, China and Taiwan, are scrutinizing re/insurers more carefully and with a greater focus on profitability and sustainability. And the re/insurance industry is experiencing another wave of consolidation, not unlike that occurring in other sectors. Likewise, some re/insurers are revising their strategic and operational plans for the region and exiting lines-of-business or geographies where profitability has been elusive.

As a result, Asian clients today must contend with upward trending rates, calls for higher deductibles, stricter underwriting policies, and in some cases, fewer markets for some lines-of-business or occupancies.

A diverse and complex risk landscape

At the same time, companies in Asia and around the world must cope with a risk landscape that is considerably more varied and complex. Noteworthy new and evolving threats include:

- Catastrophes: These include natural disasters, many of which are becoming more unusual and extreme due to climate change, plus environmental contamination and pandemics.

- Political instability: While hardly a new risk, these threats are amplified in today’s highly interconnected global economy where events in one country can quickly reverberate around the world. As the headlines remind us daily, political instability often breeds violence and civil strife which, in turn, can lead to property and critical infrastructure being damaged or destroyed, suppliers/business partners being driven into bankruptcy, and in-country assets being seized.

- Cyber: Today, virtually ALL companies, government agencies and individuals are vulnerable to a cyber-attack. Cyber is also a particularly vexing challenge as the number of entry points for attacks grow exponentially – propelled by the proliferation of connected objects and the internet of things – and as cyber-criminals continuously adopt new methods and tools.

- Supply chain: Most companies today recognize that supply chain disruptions can be extremely costly, especially when the indirect costs are included. And as supply chains continue to get longer and more complex, understanding where and how a company is most at risk isn’t always easy.

- Intangible assets: For many firms, the company’s brand/reputation, intellectual property and data represent a disproportionate share of overall value. Consequently, protecting these assets is increasingly an urgent priority.

This, of course, is only a partial list of various threats Asian companies must contend with. Others include terrorism, product recalls, credit defaults, criminal risks (theft, bribery and extortion), and on and on.

Creating a new paradigm

Considering these new developments and trends, I think it’s essential for clients, intermediaries and insurers to work together to create a new paradigm.

That starts, in my view, by recognizing that agreeing on the terms, conditions and prices of annual indemnity policies is only part of the process. While that’s obviously essential, clients also should take advantage of the extensive experience and expertise their insurers and intermediaries have in working with all types of companies to help them understand their specific exposures and to propose practical and cost-effective measures for managing and mitigating different risks. These range from implementing simple, inexpensive “housekeeping” best practices to reduce property risks, to sophisticated insurance structures that employ highly capital-efficient approaches for financing risk.

I’d also urge clients and intermediaries to engage with their insurance partners as early as possible. Understanding a client’s exposures, defining the critical priorities and devising the “right” solutions is necessarily an iterative process involving analysis, discussion and, ultimately, negotiation. While these activities require an upfront investment of time, the payoffs usually are considerable.

I also believe – strongly – that a partnership orientation yields significant benefits. As we develop a deeper understanding of a client’s aspirations, operations and business methods, the iterative process I sketched out only becomes more efficient while the solutions become more responsive and effective.

Greater familiarity – in both directions – also makes a huge difference when a client experiences a major claim. In these situations, the resolution and settlement process can only benefit when the client, insurer and intermediary work together cooperatively and with a clear understanding of their respective responsibilities, needs and capabilities.

I would also add, in the context of claims, that opting for the cheapest, bare-bones coverage that is offered can present difficult challenges over the long-run. When the business model is based on razor-thin margins, even small disruptions can be difficult to absorb. With insurance, that can translate into uncertainties and delays in getting covered claims resolved promptly and fairly.

In summary, I have a positive view about the evolution of the Asian insurance market. As the “good-fast-cheap” paradigm recedes, and clients focus more and more on the broader value they can gain from enhanced engagement with insurers, I expect to see more holistic enterprise risk management that, for instance, capitalizes on new analytical/modelling tools and capabilities. The new paradigm is also likely to encompass a greater reliance on global programmes and captives, as well as alternative risk financing approaches like structured risk solutions.

About the author: Zoe Xie is AXA XL’s Client and Distribution Leader for Asia. In this role, she is responsible for the client management and distribution development strategy across Asia. Zoe is based in Singapore but travels extensively across the countries in Asia. She can be reached at


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