In April 2009, Mr Nehemiah Neo, Managing Director of the vrs Insight Group, Singapore wrote:
As we move into the second quarter of 2009, there is not a great deal of good news around for the insurance sector in the region or on a global basis. It is difficult to find positive signs that the rest of this year is going to be a good one for the insurance industry. M&As But one thing which is always good to see during a crisis or a recession is the way companies react to ensure their businesses survive and grow stronger. I believe there is evidence to show that many insurers are looking at the strategy of merger and acquisition in the industry and this recession may well trigger a further round of companies deciding to get together in order to make themselves stronger or to play catch up. The latest example of this came last month in Japan, when two of the country’s largest general insurers, Sompo Japan and Nipponkoa declared they were to merge their operations. Observers cited stagnant premium income growth and falling stock markets as reasons for the two big companies to get together. It follows on from the three-way merger announced in January of Mitui Sumitomo, Aioi, and Nissay Dowa . The deals are domestic in that they affect the Japanese market, but I believe the comparatively flat Japanese markets will mean Japanese insurers will continue to look overseas and particularly in Asia for their next phase of growth. We have already seen that with the Tokio Marine making acquisitions in Southeast Asia. This in turn could spark a round of mergers and acquisitions in the sector in Asia as the trend of Japanese insurers to acquire Asian companies increases. In addition, the years of living off investment income returns to offset mediocre underwriting results are over. Loss adjusters to take heed The loss adjusting sector should be aware of this trend in Asia as ultimately it will cut the ‘customer pool’ – there will be fewer, larger customers . These larger customers in turn will seek the services of loss adjusters who have the ability to deliver service across territories and business lines with consistency and professionalism. In times of consolidation and shrinkage, loss adjusters have to remember their role in the service chain provided by insurers to their customers. I believe that when there is a steadily rising market such as the one we witnessed for five years until the latter half of last year, the basic relationships between insurers and third party partners such as brokers ,adjusters and the like, tend to get a little cosy. But they are allowed to continue because the top line looks pretty good, as does the bottom line. In the case of loss adjusters and the relationships with Companies to get bigger Companies are merging as they get together to make themselves stronger in the current difficult climate. Mr Nehemiah Neo, Managing Director, vrs Insight, Pan Asia Loss Adjusters, believes that this trend will continue and that there will be fewer but larger companies dominating the underwriting scene in the years to come. As such, these companies will also wish to work with loss adjusters which are big and have global connections and global standards of service. insurers, these contacts can become formulaic and even a little mechanical in good times. Trusting but professional relationships But in a recession – where every outsourced contract, every ‘outside’ relationship gets examined, there is scope for innovation and putting greater thought into how things can be done differently. It can be argued that the use of loss adjusters and their relationships with the major insurers had indeed become conservative in the lengthy period of good times that we had enjoyed, especially here in Asia. But with managements under pressure to perform and looking at the M&A option and also for greater value from their suppliers, there is scope for more competition. The relationship between an underwriter and his loss adjuster has to be one of consummate trust. That is why such underwriter-loss adjuster relationships enjoy longevity because it takes time and track record to demonstrate that trust is well placed. But at the same time, the relationship, once established, should never become staid or fixed as that leads to complacency and in turn, that is the moment when standards tend to drop. It is fair to say that the panel of loss adjusters chosen by underwriters in the past years have been dominated by a handful of companies which no doubt have done a very good job for underwriters. It is good to see new names like vrs Adjusters getting onto panels and I believe that is a direct result of underwriters looking around, seeking greater value for their shareholders and generally encouraging competition among the service providers. Larger companies will dominate If there is one long term trend among insurance companies in Asia which is clearly visible, it is the fact that there will be fewer but larger companies dominating the underwriting scene in years to come, just as we are seeing in Japan right now These companies in turn will demand standardised, universal benchmarked loss adjusting services from the companies who consistently get on their panel. That means that the days of the small, stand alone loss adjuster may be numbered. Loss adjusting has to transform to meet the demands of the consolidating insurance market. I believe the loss adjusting industry is doing just that which is why new brands are emerging with new companies which are able to project themselves on a global basis and give global standards of service while retaining local knowledge. The recession is likely to continue for a while but the industry must use it as a positive opportunity to examine what can be done better and what can be improved. If so, we will not only survive but will surely thrive.
96 ▲ www.asiainsurancereview.com ▲ April 2009 Insights