Tag Archives: Thailand

In a Crisis, Will You Be Ready?

S___ happens!

Fifty years ago, Rock, David and I were at Pelican Aviation’s hangar listening to several seasoned pilots talk about their most terrifying experiences in the air. One said, “The engine made a loud noise, the plane shook violently and suddenly I couldn’t see a thing.” One of us innocently asked, “What happened – did the windshield shatter?” His answer was simple, “No, tears.”

Having spent much of my adult life in insurance, I’ve seen many disasters. The question is: Are we ready?

Hurricane Katrina was a terrible event for Mississippi. In New Orleans, there was minimal wind damage, but there were levee failures and accompanying social/civil chaos.

There was also a little-noticed success story: LSU’s medical school relocated from New Orleans (blocks from the chaos) to Baton Rouge in about a week. This required some luck, community (BR and NO) support and, I believe, some divine intervention, but it was an example of leadership at its best.

What if you had to relocate your office, all your team and everyone’s families following a catastrophe? Have you even considered the possibility?

See also: 4 Lessons From Harvey and Irma  

Here’s reality – many if not most of us will face great challenges. Some may parallel experiences we’ve seen before, just with greater or lesser intensity. There will be more fires, hurricanes and floods. Terrorists will attack us again. Planes will crash. We can’t stop all the bad in the future – the best we can do is try to avoid or at least mitigate the damage.

Most of us watched the successful rescue of 12 young soccer players and their coach from a flooded cave in Thailand. Relative to 9/11 or Hurricane Katrina, it is a minor event, but I believe it will prove to be one of the best case studies anywhere of what to do when the stakes are high, time is limited and you don’t know what to do.

Remember, these folks were lost for about 10 days before anyone even knew where they were. The last few days of their stay were examples of calm, leadership, courage, planning, possibilities and then very deliberate action.

Every Seal, volunteer, civilian, etc. should be celebrated for their effort, courage and patience – living and learning as they progressed. They didn’t rush in, reacting to a terrible situation. They walked, crawled, and swam in, well-prepared and observing appropriate caution. In construction, we’d say: Measure twice, cut once.

Never forget that one of the rescue team died early in the process. Was this loss the impetus to do things differently? I don’t know. I do believe our greatest learning occurs in adversity – it is the wisdom of scar tissue! The death was tragic but may have slowed the process and improved results.

I encourage each of us to consider the disasters that could be on our horizon. Begin a crisis management process with your families and your organizations. You won’t have all the answers, and you don’t yet know all the questions – nonetheless, be as prepared as you can and program for the unexpected. Plan your actions and act your plan.

See also: Innovation — or Just Innovative Thinking?  

A speaker once said at an agents meeting, “the merchant of misery is either at your door, just left or will soon arrive.” The best thing you can to is to be as prepared as possible and hope and pray you are blessed with the courage, skills, patience, process and RESULTS that these Thai crisis managers enjoyed.

Be prepared. Practice your preparations. Preparedness is a process not a one-time event. If in the end all of your preparation is not needed, BE THANKFUL. If it is needed, you may thank me for the suggestion. Good luck and Godspeed.

Insurtech Ecosystem Emerging in Asia

Building on T.J. Geelen’s blog post about the thriving fintech ecosystems in Asia, I’d like to share with you some insights relating to the emerging insurtech ecosystem in the region. Although insurtech in Asia is in its infancy, since 2015 we’ve seen a surge of interest. By the way, I’m a big believer that Asia has a real potential to power the next wave of global insurance innovation.

Four flavors of insurtech

First, let’s revisit the definition of insurtech to make sure we are all on the same page. Essentially, there will be three major camps of insurtech: one that enhances existing insurance structures, another one that aims to disrupt by providing alternative digital risk transfer mechanisms and the third type coming from existing insurance firms attempting to defend their existing market positions. The first and third types broadly can be broken into the following sub-types:

  • Product sales/distribution (aggregators, online portals, apps)
  • Risk management (IoT, healthtech, blockchain)
  • Fraud detection/prevention (big data, machine learning)
  • Claims management (big data, machine learning, vendor network management solutions)
  • Service management (chatbots)
  • Investment management (portfolio optimization, asset/liability matching)

The second type attempts to drive an end-to-end structural innovation, either removing part of the structure or fully digitizing it.

Why Asia for insurtech

Asia is attractive from both an insurer and an insurtech perspective due to the size of its significantly underinsured population. The region has traditionally seen a large part of the risks self-insured through family and community networks. As the region experiences rapid growth in the affluence of its population, together with an aging population, the risk exposure is becoming even more apparent, and the need for alternative risk transfer mechanisms, including insurance, increases. Insurtech, alongside traditional insurance, can help.

Further, there are near-perfect locations for the launch of a program. Singapore, for one, allows for sandboxed experimentation, regulatory support and advanced tech infrastructure. Limitations of traditional insurance distribution channels and the rapid increase of 4G mobile penetration mean that insurers are also highly interested in exploring innovative partnerships that help them connect with potential customers.

See also: Matching Game for InsurTech, Insurers

Insurtech in Asia

Asia is a very diverse region and has a mix of developed and emerging countries. So far, the major push for insurtech has come from China, India, and Singapore, while Japan, Korea and emerging Vietnam, Cambodia, Taiwan, Philippines, Thailand, Indonesia, Malaysia and Burma have lagged. (While Australia and New Zealand are geographically close and are very well integrated in the Asian region, the markets are much more ”Westernized” and hence are less applicable to this blog post.)

There’s China, and then there’s everyone else when it comes to insurtech. The first full stack (end-to-end) innovator, Zhong An, is valued at a massive $8 billion and raised $931 million. It accounts for more than a third of the global insurtech funding in 2015. It is also worth mentioning TongJuBao (peer-to-peer) insurer and FWD (Asia’s second-richest family’s insurance venture, which is re-positioning itself from traditional insurer to an agile digital insurance competitor).

India, another vibrant insurance market, has seen its insurtech innovation focus mostly on distribution. Not surprisingly, two of the major aggregators come from India: Policy Bazaar and CoverFox have seen healthy level of customer take-up as well as sources of funding. CoverFox has recently expanded its service proposition, now assisting customers with their insurance claims.

Being based in Singapore, I have a particularly detailed view of the insurtech landscape in Southeast Asia. So far, I have gathered the following mapping of Asia insurtech startups as they fit within the insurance value stack. There’s a mix of very-early-stage as well as more mature Series A and listed ventures. The list keeps growing.

Please feel free to comment and reach out if you come across any additional startups that I’ve missed out in the list below, and I’ll update it.

Area:

Distribution

Actual Losses

Operating Insurance Co.

Value:

20%

55% Losses + 5% Fraud

20%

Role:

Aggregators

Leads Generation

Customer Transactions

Improving risks

Fraud detection

Rewarding healthy

Risk assessment

Loss adjustment

Operational/Service Efficiency

Start-ups: Policy Bazaar (Aggregator)

CoverFox (Aggregator)

Health/House-front

Latize (Fraud) JustMove (Health)

Uhoo (Health IoT)

Harti (Health)

WaveCell (Comms platform)

Fixir (Finding repair garage)

MyDoc (Health claims)

Stash.ph (Health claims)

GoBear.sg (Aggregator)

Cxa (Employee benefits)

PolicyPal (Policy mgm.)

UEX (Group policies)

Zhong An (General Insurance) CH

TongJuBao (Peer to Peer Insurance) CH

DirectAsia (Direct General Insurance) SG

FWD (General / Life Insurance) HK

Singapore Life (Upcoming Life Insurance Startup) SG

 

Corporate insurtech

Singapore, with its advanced infrastructure and innovation-supportive financial services regulator (MAS), has secured a leadership position for Asia’s corporate insurance innovation as reflected by the high concentration of insurance innovation centers. Eight of 10 Asian insurance innovation centers are based in Singapore. The innovation centers are powerful corporate change catalysts and typically include elements of awareness building and cultural transformation.

Firm Innovation Center Country Focus Status
Aviva Digital Garage Singapore Digital Transformation Active
Manulife Loft Singapore Digital Transformation Active
MetLife LumenLab Singapore New business models Active
Allianz Digital Labs Singapore Digital Transformation Active
AXA Data Innovation Lab Singapore Big data Active
AIA Edge Singapore HealthTech Active
Munich Re Innovation Lab China General Insurance Launched Q1 2016
Swiss Re

India IoT, AI, Big data Planned July 2016
IAG

Singapore

Rumored 2016
NTUC

Singapore

Rumored 2016

 

In summary, Asia is a region to watch when it comes to insurtech. Whether it be the home-grown insurance innovation from China and India, corporate innovation from Singapore or innovation concepts imported from elsewhere and deployed in Asia, the region is likely to deliver a vibrant insurtech ecosystem during the course of the next two to three years. And when the dust and excitement settles down five years down the road, we’ll have a fundamentally stronger set of competitors.

Wanting to accelerate insurance innovation, we’ve created InsurtechAsia, an action-oriented community of insurance practitioners, entrepreneurs and industry stakeholders across Asia. We are aiming to attract the best minds to tackle the challenges and opportunities in insurance, connect entrepreneurs with the best enablers, validate concepts and help business scale rapidly.

See also: New Insurance Models: The View From Asia  

A dedicated and company-agnostic insurtech accelerator, such as Startupbootcamp InsurTech, which was launched in London in late 2015, would go a long way to spur further insurance innovation here in Asia. We eagerly await the day when Startupbootcamp InsurTech will come to Singapore.

Are you passionate about making a change to the insurance industry? If so, join us at www.insurtechasia.com and follow this great team of like-minded people on Twitter: @insurtechasia.

How to Be Disruptive in Emerging Markets

Much has been discussed as to the coming disruption of the insurance industry in emerging markets. While I believe that it is happening, I also believe that, contrary to the common held view of many of my peers, building a disruptive insurance platform in emerging markets is going to be a marathon and not a sprint. I do not claim to have all of the answers. In fact, we are not even close to having most of the answers, but we have learned a few things along the way.

While many are quick to predict the demise of the traditional broker, I believe that the evolution of disruption within the insurance market will be one of natural selection. There are many highly profitable brokers in these markets that have a deep understanding of their customer, regulatory issues, market trends and simple common sense. Most are family-owned, with a new generation of family members anxious to take the helm. And while most of these brokers are not tech-savvy and certainly do not have regional or global aspirations, the ones of interest are forward-thinking and anxious to take on a new challenge as they clearly see how the winds of change are blowing.

I see these brokers as natural partners, and by acquiring key brokers in each market the aspiring disrupter will gain immediate market share, revenues, EBITDA, customer and databases, infrastructure (yes, customers still like to talk on the phone), licenses and management talent. With those beachheads in place, you will be able to take the next step, which is to apply technology to the existing base. This can start with the basics; consolidating databases, cross-selling, upselling, retention, dashboard analytics moving ever further up the food chain to digital marketing, big data and someday the mysterious artificial intelligence.

All of this creates short-term value, as you will see immediate increases in CAGR, EBITDA, retention rates and other key metrics, but that doesn’t change the perception of insurance for the consumer. In simple terms, these changes are not disruptive and at the end of the day are boring for customers.

See also: An Eruption in Disruptive InsurTech?  

So what will be the secret sauce? The carriers are an integral part of the ultimate disruption process, as they will work with the broker and consumer to develop the transformational products that the new consumer is going to require. This will be a key part of the challenge, as this will require a radically new approach to product development and, of course, dissemination. Products will include temporary auto insurance, school insurance for books, computers and other needs, home office insurance (do you know how many new consumers work out of their home) and unique vacation insurance. These products will drive real value for shareholders, while at the same time we are ultimately improving the lives of our customers.

I am convinced that one of the key secret ingredients for creating disruption within the emerging market insurance industry will revolve around product bundling and the great feeling you get when you believe that you just received a gift. It is also about being part of a contest and, yes, winning a prize.

By partnering with leading manufacturers of cosmetics, sporting goods, automotive, school supplies, and fashion apparel, the aspiring disrupter can bundle these products with the underlying insurance product that their customer is buying and enjoys buying. In the most basic form, when our customer buys travel insurance they will receive free sun care products. If they buy school insurance, they receive free school supplies. It is a win-win for the product supplier, the customer and the insurer.

If you think this is fluff, just ask the new consumers who are watching every penny in their budget.

But that is not enough, as we want a long-term relationship with our customer. So in addition to all of the above we are sponsoring online contests. To promote scholastic achievement and safe driving, we will soon have one for the zaniest insurance videos, i.e. my homework was actually eaten by an iguana or my car was crushed by an elephant. All of this is meant to build a very real bond with the consumer, improving their lives along the way.

The evolution of disruption in emerging markets has been interesting to observe, as the “the rage of the day” began more than two years ago with the aggregator model. Numerous well-funded ventures launched online insurance websites in Brazil, Argentina, Colombia, Thailand and many other markets with a few common traits. The ventures were not disruptive, they had no existing customer base and they had no real strategy for interacting with the new consumer. The majority of these online insurance portals were “aggregators,” providing real-time or in some cases faster-time quotes from multiple insurance providers. The sites were often difficult to navigate and crowded and typically lacked originality. Soon, the novelty began to wear off as investors realized that “Build it and they will come” was not going to happen.

Disruption became the flavor of the day, but most investors and operators didn’t really grasp or even care what the term meant. The overriding concern was “getting traffic to the site,” and, while digital marketing strategies were developed and bandied about, the fallback position quickly became traditional media. In one case, the dominant online insurance broker in Brazil was told by its investors that it would not receive the next tranche of capital unless it dramatically increased spending on TV, print and radio advertising. Yes, the media of the past had become today’s agent for disruption.

While spending millions of dollars on traditional media for insurance is still a fact of life in many mature markets, it can hardly be called disruptive or for that matter even efficient.

The next phase of evolution came in the form of “digital marketing” and mobile apps. As smart phones typically outnumber the average population in most emerging market countries (in Brazil, there are an estimated 280 million smartphones for a population of 200 million people), the logic stands that this is the best way to reach the consumer. But dig a little deeper and ask yourself a very simple question: How important is insurance in your day-to-day life? For all of us who are selling, packaging or creating insurance products, insurance is the center of the universe, but for the average consumer insurance rates a two or a three on a scale of one to 10, if that.

See also: Pokémon Go Highlights Disruptive Technology 

While the “next wave” was unfolding, other issues became noticeable. Many of the “disrupters” were country-centric, with no real plan or strategy for regional or global expansion, which seemed odd. After all, if you are planning to disrupt insurance in Chile, wouldn’t you want to consider disrupting insurance globally, or at least in somewhat similar countries in Latin America?

Some products, such as auto insurance, were seen as commodities that were as sexy to the consumer as a trip to the dentist, so the market screamed like banshees for new products; pet insurance, travel insurance, smartphone insurance, hotel insurance, sport insurance, bike insurance….the list goes on.

We are increasingly living in an age of data overload, and we need to be very discerning as to the relationship we develop with the customer. We also need to be discerning about local markets. In China, online insurance companies popped up overnight, and many of them reached wild valuations by just selling a single product, like travel insurance. But, in Brazil, the market is much more mature, and travel insurance is about as new as samba.

With a robust online presence, massive investments in traditional media, digital marketing, mobile apps and new products, things were sure to get disruptive, right? Wrong, as consumers were still using traditional brokers, and insurance was still not on their top 10 list.

So what next? Could it be the vaunted but yet indefinable artificial intelligence?

Within the span of two short years, we have moved from science fiction to science fact. What if, through AI, we could predict when our customer would have their next child, next house, car, divorce, marriage and even death?

This would be real disruption, as we would be able to predict consumer behavior and in doing so create a “cradle to grave” lifecycle of products, sales, conversion and retention.

The problem, of course, is that AI is still in its infancy, as there are very few 2001 Space Odyssey HAL computers in the world today. Even if we had mastered this technology, there is still a larger question of how to use it and deploy it. This question will inevitably be answered, but for now we still face the fundamental challenge of taking a very boring product and transforming it into something consumers actually get excited about. We also need to ask ourselves how we would scale across multiple countries in a relatively short time.

That brings us to the end of our story, or, rather, the beginning. Disruption is coming to the insurance industry, and it will find fertile ground in the fast-growing emerging markets and the new consumer. The savvy insurance disrupter will gain massive amounts of data that will have value for a wide spectrum of partners.

Major Regulatory Change in Asia-Pacific

The global insurance industry is undergoing significant regulatory change, with regulators in the more developed markets endeavoring to synchronize their efforts. Similar occurrences can be observed in the Asia-Pacific region, where a number of countries are reviewing and undergoing changes in their approach to insurance regulation and holistic risk management. Most notably, a number of regulators are either introducing risk-based capital (RBC) or revisiting their existing RBC frameworks. The maturing regulatory approaches in Asia-Pacific will be a significant factor in managing systematic risk and enhancing policyholder protection.

Asia-Pacific is different

While the proposed RBC framework in Asia-Pacific may have similarities with the European Solvency II standard, there is wide disparity in the level of sophistication and application. Many of the changes are being driven by local market nuances, such as characteristics of the insurance products being sold and maturity of the insurers who operate in the various jurisdictions.

For example, Australia has recently implemented its second-generation solvency regime. Singapore and Thailand are consulting with the industry on second- generation RBC frameworks, while others such as China and its Hong Kong SAR are considering moving in that direction. These moves are particularly encouraging in providing a regulatory framework that will allow for a degree of consistency, especially for those insurers that have multiple offices across the region.

In addition to the changes in reserving and solvency calculations, a number of regions are also strengthening their risk management efforts (e.g., China with C-ROSS). This exemplifies how regulators are paying more attention to embedding risk management activities in the business. They look to ensure that senior management has sufficient oversight to allow them to consider and discharge their fiduciary responsibilities. It is important that organizations have an operational infrastructure and that the risk profile is within business risk appetite levels.

What does this mean for insurers?

Advances in regulation in the Asia-Pacific region
are far-reaching. The implications are expected to improve the way businesses will operate to create long-term sustainability. These implications, in our view, will affect product offerings, investment strategy, capital utilization, risk transfer opportunities and infrastructure.

In particular, we foresee several implications:

• Robust regulatory framework will provide comfort to the overall financial soundness of the insurance industry. However, the cost of regulatory compliance is expected to increase significantly.

• Changing regulations will provide more room for innovation and incentives to enhance or change organizational metrics. Better-managed companies will potentially benefit from lower capital requirements, making their products more attractive.

• Companies traditionally focusing on new business value will have to rethink the continuing profitability of past years and will need to understand options available for in-force value management. This will be particularly crucial given that existing forms of new business may be capital-intensive.

• A better understanding of the business risk profile will be needed. This will necessitate implementing sophisticated techniques in modeling/optimizing risk- adjusted returns and outlining a more systematic process for risk appetite.

• Investment will be required to enhance the modeling and reporting systems to meet regulatory timelines.

• Convergence of regulations toward RBC will also mean that there is less disparity between local and foreign players. This will make Asia-Pacific insurance markets potentially more attractive for foreign investments. Moreover, customers may eventually benefit from new ideas and solutions from both foreign and domestic insurers. This will create a healthy competitive market place for policyholders.

Challenges and opportunities

Based on experience in more developed insurance markets, changes in regulations produce both challenges and opportunities for insurers. In the short term, it is anticipated that there will be more investment demands on insurance companies. Insurers have the prerogative to make the best use of these investments to define long-term opportunities.

In Europe, for example, some insurers have used Solvency II as a means to further enhance their risk management systems, capital allocation mechanisms and reporting infrastructure, and redefine their key performance Indicators. This, in turn, has convinced shareholders and analysts that investments because of regulatory changes should not be for mere compliance, but rather as a means of enhancing competitive advantage. We believe that insurers in Asia-Pacific should draw upon the experiences and challenges in more developed markets to establish an approach for Asia-Pacific markets that considers regulation, economic nuances and the purchasing behavior of policyholders.

Looking ahead

There will be many changes within the industry over the next few years, and companies will need to consider the operational implications for their businesses. Based on our conversations and experience in the region, we see an increasing number of insurers making adjustments to their future business plans and investment needs. Some of these modifications are tactical, such as enhancing their existing processes, while others have the potential to have a wholesale effect on entity rationalization and strategic initiatives, such as capital optimization.

We are very engaged with the regulators, industry bodies and insurance companies in the emerging discussions and are helping insurers to consider these regulatory changes with a strategic mindset.

China

The China Insurance Regulatory Commission (CIRC) has adopted a factor-based solvency system similar to Europe’s Solvency I regime. It is composed of internal risk management, solvency reporting, financial analysis and supervision, regulatory intervention and bankruptcy remediation. This solvency regulation system was built from 2003 to 2007.

Over the past 30 years, the Chinese insurance market has become one of the fastest-growing in the world, and its complexity and risk have increased accordingly. The existing static solvency system no longer properly reflects asset and liability risks facing insurance companies. Therefore, it has limitations in providing good guidance for insurers to improve risk management quality and capabilities.

Globally, there is a trend toward more risk-oriented regulation and governance, such as Europe’s Solvency II, the US NAIC’s solvency modernization initiative and Singapore’s RBC 2.

Developing a new solvency system for mainland China would not only meet local market needs but could also provide pragmatic and invaluable experience for other emerging markets, as well as the international insurance community.

Australia

Australia has two primary supervisory authorities, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC). Both bodies have authority over the entire retail financial sector, comprising deposit-taking institutions, life and non-life insurance companies, friendly societies and superannuation schemes. APRA is responsible for the licensing and prudential regulation of financial institutions, while ASIC deals with consumer protection issues.

The most significant recent enhancement to the regulatory regime is the capital adequacy framework and draft conglomerate supervision. This is supplemented by a corporate governance regime.

Hong Kong

The insurance industry in the Hong Kong SAR has witnessed considerable growth in the past decade. As of Oct. 14, 2014, there were 155 authorized insurers in Hong Kong, including
44 long-term insurers, 92 general business or non-life insurance companies and 19 composite insurers (i.e., life and non-life insurers).

In Hong Kong, the Office of the Commissioner of Insurance (OCI) is the Insurance Authority (IA) under the Insurance Companies Ordinance (ICO) and oversees the financial conditions and operations of authorized insurers. The OCI is part of the Financial Services and the Treasury Bureau of the Hong Kong Government.

India

The Indian life insurance industry has witnessed a phenomenal change in the last 14 years since it was opened to private players. It experienced strong growth (a CAGR of 30%) for almost a decade, until a wave of regulatory changes capped charges for unit-linked products. This compelled insurers to shift focus from unit-linked investments to traditional protection products, significantly slowing industry growth. With reduced shareholder margins on unit-linked plans, sales of traditional products have increased and now constitute at least half of new life insurance business, whereas unit-linked plans are facing negative growth.

General insurers have seen growth of 16% CAGR over the past decade. This is attributed to the evolving regulatory environment, new private companies entering the market, changing demographics, greater disposable income and business development in the corporate sector. In fact, growth was significantly higher in the financial year 2012–13 — up 24%, primarily as a result of policies sold and rate adjustments.

Against the backdrop of a relatively underpenetrated market, there is a significant potential for sustainable long-term growth. Currently, there are 24 life insurance and 28 general insurance companies in the market. A few mergers and acquisitions are in the pipeline.

The industry today is in a state of flux. Surrounded by political uncertainty, slower economic growth, regulatory changes and increased competition, insurance companies are looking to increase profitability, manage expenses and improve persistency.

Indonesia

Indonesia is one of Southeast Asia’s largest economies and presents a huge untapped market for the insurance industry. An expanding middle class and the young demographics of the population is creating a vast platform for savings and investment products, and as life insurance continues to show exponential growth, the microinsurance market is gaining traction with low- income consumers.

Against this backdrop, the Indonesian insurance industry is being shaped by changing regulations and stricter capital requirements that are aimed at introducing greater transparency and stability. In this transformed regulatory landscape, there are more new entrants to the market and greater opportunities for mergers, acquisitions and joint partnerships.

Malaysia 

Malaysia has a well-developed, stable economy that continues to attract insurers. The GDP is growing at nearly 6%, and unemployment and inflation are relatively low. Demographics and strong economic growth have helped to develop a strong market for takaful insurance and bancassurance. In recent years, the country has undertaken wide-ranging reforms aimed at improving regulatory efficiency and opening the door to greater competition in financial services.

The Malaysian insurance industry, like others in the Asia-Pacific region, is struggling with depressed investment returns, higher volatility in capital markets and increased pressure on the cost of capital. Against this business landscape, the industry appears to welcome regulatory changes. However, there are also concerns that some of these changes are diverting attention from key issues, such as improving portfolio returns and new business.

Singapore

The Monetary Authority of Singapore is finalizing the risk calibration and features of the RBC framework, with implementation expected from Jan. 1, 2017.

The RBC framework for insurers was first introduced in Singapore in 2004. It adopts a risk-focused approach to assessing capital adequacy and seeks to reflect most of the relevant risks that insurers face. The minimum capital prescribed under the framework serves as a buffer to absorb losses. The framework also facilitates an early intervention by the Monetary Authority of Singapore (MAS), if necessary.

While the RBC framework has served the Singapore insurance industry well, MAS has embarked on a review of the framework (coined “RBC 2 review”) in light of evolving market practices and global regulatory developments. The first industry consultation was conducted in June 2012, in which the MAS proposed a number of changes and an RBC 2 roadmap for implementation.

South Korea

The regulatory authority for the Korean financial services industry, the Financial Supervisory Service (FSS), introduced RBC in April 2009. In replacing the Solvency I requirement, the RBC scheme aims to strengthen the soundness and stability of the overall insurance industry.

In the rapidly changing insurance market, FSS has to review the RBC regime continuously to ensure that it serves the intended purpose. This effort included some changes in 2012, such as subdividing capital classes and categorizing risk factors in accordance to the types of risks transferred to insurance companies. Moreover, FSS enhanced the RBC calculation methodology by adding reverse margin risk as part of interest rate risk in 2013 and by raising the confidence level of risk factors for insurance risk early in 2014.

In light of the recent enhancements, some insurance companies’ solvency margin ratio has fallen below the FSS’s recommended ratio of 150%. As a result, these insurers have had to raise capital through alternative options such as issuing subordinated bonds.

Thailand

The Office of Insurance Commission (OIC) implemented a risk- based capital (RBC) framework and gross premium valuation (GPV) regime in Thailand in September 2011.

The OIC rolled out two phases of parallel tests before the actual implementation of the RBC framework to gauge the impact on insurers and to gather industry response. The solvency requirement was also increased from 125% at the initial implementation to 140%. This became effective Jan. 1, 2013, to give insurers more time to respond to the changes.

In 2011, the Thai regulator granted temporary RBC exemptions and relaxed some of the restrictions. This was an effort to help local general insurers overcome financial difficulty caused by flood losses that occurred that year, as the floods coincided with implementation of the RBC framework.

The OIC rolled out two phases of parallel tests before the actual implementation of the RBC framework to gauge the impact on insurers and to gather industry response.