Smaller brokers get niche to tackle emerging Asian markets

Asia street scene

Small brokers in South East Asia are turning to specialist insurance products that are considered too niche to be of interest to their larger counterparts as Nicky Burridge reports.

Asia street scene

Major international broker firms, such as Marsh, Willis, Aon and Jardine Lloyd Thompson, are all active in key markets in Asia like Hong Kong, Singapore and Taiwan.

But it is the second- and third-tier brokers that are focusing on selling less well-known products, particularly in emerging markets in the region.

Alex Faris, senior marketing manager at Lloyd's Asia, says: "The financial lines and energy markets tend to be covered by the big multinationals. But trade credit is often covered by specialist niche players."

The smaller players are also more likely to offer newer products, such as cyber and environment insurance, it has been claimed.

Peter Phillips, managing director of specialist insurer Markel International, says that some major global brokers have developed teams to support clients or offer a full broking service in their specialist field.

But he adds: "A number of specialist brokers also exist in the region which often focus on a narrower business base and have developed real expertise in certain areas."

"For trade credit the market is transitional and is beginning to grow on the back of several recent entrants." Phillips

 

Growing appetite
Phillips explains that there is a growing appetite for specialist insurance lines in the region, driven by expansion in the energy industry, including the acquisition of assets outside Asia by local companies, changes in regulation, and the adoption of global business models.

But he added that, while some niche lines such as energy, marine and financial risks are now well established, with substantial insurance and reinsurance capacity available in Asia, other products are still emerging.

"For trade credit the market is transitional and is beginning to grow on the back of several recent entrants," he says.

"The exposures undoubtedly exist for emerging risks like cyber and environmental impairment, but there is a very limited supply of capacity to cover such risks at present."

The growth in specialist lines is reflected in the expansion of products underwritten by Lloyd's Asia.

The Singapore-based market started underwriting in 2000, predominantly as a marine and offshore energy platform.

Gross premium income for offshore energy, marine and aviation hull, which are grouped together in the market's statistics, more than doubled between 2007 and 2011 to reach $151.8m (£93.4m).

But, while offshore energy has remained Lloyd's of Asia's biggest class of business for several years, the market has expanded to offer cover across the Asia Pacific region in a number of specialist lines, including political risk, terrorism, political violence, financial and product liability.

"Trade credit is a newer class for Lloyd's Asia and we have specialist underwriters in Singapore that cover it," says Faris.

"The demand for cyber and environmental cover is growing, and the syndicates work very closely with their colleagues based in London to offer that cover locally."


"Trade credit is a newer class for Lloyd's Asia and we have specialist underwriters in Singapore that cover it." Faris


Raising awareness

One of the reasons smaller brokers are more likely to be involved in the niche lines than their larger counterparts is that demand for the product is often limited by the fact that companies in the region do not know it exists.

As a result, brokers have to develop a market by educating potential clients about the benefits the cover offers.

Tony Weinert-Aplin, chief executive of specialist broker Gemini, explains that larger brokers tend to focus on bigger opportunities, such as selling professional indemnity insurance to members of trade bodies, or handling large corporate accounts.

"The smaller brokers tend to try to develop markets and products in under developed countries like Laos, Cambodia and Vietnam," he says.

"They will go around a market and explain the product, and talk people through the policy wording and proposal forms."

"The smaller brokers tend to try to develop markets". Weinert-Aplin

 

Price sensitive
Weinert-Aplin adds that the price also needs to be quite competitive to get people to buy a new product.

"It is difficult to get underwriters to go into a new market at a competitive price, because you need a large volume of income and spread of risk to reduce the cost," he explains.

But smaller brokers tended to be able to find underwriters that are less risk averse, according to Weinert-Aplin.

"We will take it slowly, give people lower limits, charge lower prices and develop a market," he says.

But this process can be slow, while clients for specialist lines tend to be small and medium-sized companies and smaller practitioner firms, such as lawyers and stock brokers, which view the fact that they have the cover as a selling point to potential clients.

As a result, the premiums involved are often not large enough to tempt bigger players into the market.

"Big companies have less scope to innovate than smaller firms, and the contracts are not big enough for them," says Weinert-Aplin.

Specialist insurers are also playing a part in helping to develop markets.

"There is a general sense that the suppliers of specialist insurance should be more accessible to the customer, hence the desire for localised insurance solutions. We have to work hand in hand with the brokers," says Phillips.

 

"Big companies have less scope to innovate than smaller firms, and the contracts are not big enough for them." Weinert-Aplin.

 

Product promotion
He adds that Markel took part in conferences to promote products, and during the past year has been involved in subjects ranging from offshore energy and trade finance, to liability insurance for the technology industry and the effects of globalisation on Asian insurance markets.

But, although many smaller brokers are putting in the effort required to develop the market for specialist insurance, it can still remain a niche product even for these firms.

"Many brokers concentrate on the lines which are easier to sell, such as group healthcare and conventional property and casualty insurance," says Philips.

And Weinert-Aplin is confident that specialist lines will continue to be a growth area. "In every underdeveloped market there is demand for niche business," he says.

Rudolf Frei, managing director of IBNR Insurance Consultancy, agrees that niche products are a growth area, particularly for financial lines and credit insurance.

He concludes that the high growth is still likely to come from areas such as health insurance, which are currently better understood.

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