Looking at Lloyd’s APAC strategy

It’s a little over three years since the former head of claims at Lloyd’s of London moved to Singapore, and he has been struck by how, in that time, “interest in Asia has really grown globally from an insurance and reinsurance perspective”.

“The appetite has been phenomenal, as has the influx of capacity of insurers and reinsurers,” he told SR.

“The majority of international brokers, insurers and reinsurers now have their regional headquarters in Singapore. Even those brokers that are not headquartered here have their wholesale placing hubs in Singapore.

“In the past 24 months or so we’ve even seen a number of Bermudian reinsurers coming to Singapore to service their Asia-Pacific portfolios.”

In its 2013 annual results, Lloyd’s has stated its intention to “expand in the underinsured, high-growth economies around the world”, which Chaplin acknowledges means many of the countries he oversees.

“If you look at some of the less established markets in Asia, like the Philippines, Vietnam and Indonesia, the level of insurance penetration is still very low,” he said.

“There is an enormous opportunity to be a part of the evolution of insurance by providing capacity that will grow and strengthen these markets.”

Change and consolidation

Chaplin, who began his career as a barrister and solicitor in New Zealand specialising in insurance litigation, says there’s another big change that is “really key to the strategy of Lloyd’s in Asia Pacific”.

“It’s the dynamism at the ASEAN [Association of Southeast Asian Nations] level,” he explained.

“There’s an ambitious vision to create a free-trade market for the ASEAN countries by the end of 2015, and a lot of progress has been made between the 10 member states at a financial services level.

“One of the products of that dialogue is that the regulators in the region are increasing their capital requirements for domestic insurers and reinsurers. They’re raising the capital adequacy of their local markets, which is leading to change and consolidation. This will ultimately result in better-capitalised and stronger domestic markets.

“This will benefit the insurance industry by creating professionalism and well-capitalised insurers and reinsurers that can take on more risk, which in turn will help develop the market.”

Chaplin is at pains to clarify that there is no one approach that can be used by Lloyd’s across APAC.

“Asia is a massive and enormously complex region; you need to look at it country by country,” he said.

“The countries in the Asia-Pacific region are at different stages of evolution, not only economically but in terms of their insurance and reinsurance appetite, levels of expertise and buying behaviour.”

Changing risk landscape

Australia is a very important market for Lloyd’s, Chaplin says, “as are Japan, Hong Kong and Singapore”. Organisations operating in these more mature and established markets generally have highly sophisticated risk management functions, he adds.

“They’ve been using Lloyd’s in London for decades, in some cases centuries, and there’s a lot of loyalty there. We’ve built long-term relationships and our products have developed over the years to respond to the changing risk landscape,” he said.

“Lloyd’s features heavily in many of those countries’ risk management programs, either through reinsurance or through very specialist insurance products, such as professional liability, financial lines, large industrial construction and engineering risks, even products such as warranty and indemnity insurance.”

However, Chaplin reiterates, the ASEAN economies are growing quickly and “that’s where the insurance penetration will also be growing the fastest”.

“A lot of the growth is in the primary market, and alongside that it is the growth in industry, commercial property and urbanisation that’s increasing demand for specialist insurance and reinsurance,” he said.

“We’re also licensed as an insurer and reinsurer in China, and we are looking forward to long-term growth in China as well.”

Lower limits

The limits that corporate buyers purchase are generally much lower in Asia than in Europe and the US, Chaplin says, which corresponds to historically lower loss frequency, claims history and attitude to risk.

He said that while there are are big buyers of catastrophe insurance and reinsurance in Asia, cyber insurance had yet to “take hold in a big way”.

“It is increasing,” he said, “and there have been a few well-publicised cyber attacks in Asia recently so there’s a growing interest, certainly on the demand side, for cyber products.”

The key to Lloyd’s regional strategy lies in “specialist, surplus, excess type of cover”, Chaplin explains.

“If there’s a complex risk, or a lot of capacity is required, that’s where we specialise,” he said.

“Whether it’s terrorism or political risk, trade credit, heavy industrial risks, offshore energy or natural resources, Lloyd’s has the highly specialised expertise for those complex risks.

“We also provide cover where excess capacity is required because of the size of a project or where there isn’t enough capacity in the local market.”