Risk a catalyst for opportunity

Swiss Re’s latest survey unveils the risk appetite and insurance needs of Generation X and Y in Asia-Pacific, presenting tremendous business opportunity not only in the future, but also now.

When you hear “Gen X and Y are not only the future, but also the present” you would probably think it is a tagline for advanced computers or paper thin tablets – it may be but it is also true for insurance.

From April to May 2011, Swiss Re commissioned a large scale survey covering 13,800 consumers aged 20 to 40 across major cities of 11 Asia-Pacific markets. This target consumer group accounts for about one-third of the population of sample markets or around one billion prospective consumers.

The survey aims to identify any changes in consumer risk attitudes as compared to the results of the inaugural study conducted during the Global Financial Crisis in 2009, by using the Swiss Re Consumer Appetite for Risk Index (CAFRI) which consolidates four key consumer risk aspects: health, finance, career and lifestyle.  The survey scope has been extended in 2011 to look into the insurance needs and buying behaviours of respondents.

Overall, the results are quite consistent with those of the 2009 study with some major findings as follows:

  • Asia-Pacific’s Generation X and Y of 20 to 40 year olds have become slightly less willing to take risks over the past two years.
  • Respondents from developed markets tend to be more willing than their emerging market peers to take risks. Japan has become the most risk taking market, followed by Hong Kong and Australia.
  • Asia-Pacific’s Gen X and Y have strong needs for insurance and financial planning, fuelled by worry about medical expenses and the risk of living longer.
  • Perceived cost is a barrier to buying insurance; whereas life insurance is in general quite affordable and within the price they are willing to pay.
  • For the Asia-Pacific insurance industry, the 20 to 40 year olds are not only the future buyers of insurance, but also represent tremendous business opportunities now.

 

Figure 1: CAFRI ranking and index values in 2011

Concern over medical bills drives insurance needs

The study shows that around 40% of respondents across the region say their families would or might struggle financially in case of early death, major serious illness or disability, and a key reason is inadequate insurance.

In fact, a high majority (67%) are concerned about the amount they have to pay out of their pockets for medical expenses relating to major illness. And about 60% are concerned that their medical/health insurance premium will increase beyond their affordability in the future.

Clarence Wong, Swiss Re’s Chief Economist Asia, says: “Given the significant protection need, a large bulk of 63% of respondents are planning to buy life/health insurance products in the next 12 months. The proportion is particularly high for emerging markets, highlighting the tremendous catch-up potential.”

Longevity risk - a call to action

In addition, in over half of the markets surveyed, respondents tend to underestimate their life expectancy – quite significantly by 15 years in Malaysia, 9 years in Japan, and 7 years in Singapore and Hong Kong, when comparing their self-perceived average life expectancy to the official average life expectancy.

“This perception gap should ring an alarm bell, as underestimating life expectancy can be a risk in the sense that people may not plan sufficiently to meet their financial needs after retirement. The insurance industry can play a key role in raising public awareness of longevity risks and the importance of personal financial planning at an early age, as well as in offering suitable products and services for tackling the challenge,” says Wong.

Life insurance is affordable

Asked what would stop them buying insurance, over 40% of respondents say price is an issue. But over half are willing to pay at or above the market price range for a specified term life insurance cover (see Figure 2).

Figure 2:  How much respondents are willing to pay for life insurance coverage

As such, life insurance is in general not as expensive as people may perceive, and is indeed quite affordable across the region. The challenge for the industry is to ensure people understand how affordable life cover can be and also educate them about the value of insurance against the price they pay.

Winning ways

To win the customer – now and in the future - insurers across Asia-Pacific need to better understand not only their protection needs, the “pull and push” factors driving insurance purchases, but also their main channels for sourcing information and buying insurance, as well as their key considerations for choosing insurers as indicated in the survey.

Published August 2011


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