Introduction
In the past decades, insurance development has accelerated across most emerging Asian markets. A common measure, the insurance penetration rate (premiums as a percentage of GDP), increased from 3.0% in 2012 to 3.6% in 2022. Similarly, per capita spending on insurance (i.e. insurance density) also rose steadily from USD112 to USD229.[1]However, the overall figures masked significant variations among markets. China, for instance, has played a significant role in lifting both penetration and density figures. In 2022, per capita insurance spending in China stood at USD489, compared to USD86 in other emerging Asian markets outside China.[2] Indeed, insurance is still at different stages of early development in most South and Southeast Asia (SEA) markets. Importantly, despite years of solid insurance growth, protection gaps remain high and are believed to have widened over the past years.[3] While this reflects, in part, the vibrant economic growth of these markets as asset values (property protection gap) and wages (mortality protection gap) increase, the prevalence of under-insurance and non-insurance is also an apparent concern.
For instance, industry studies show that the share of uninsured losses from natural catastrophes in Asia has remained high at around 90%. Mortality and health gaps are running at trillions of dollars. New vulnerabilities are fast emerging, like the lack of protection against cybercrimes.
Consumer survey results also indicate large protection gaps. Peak Re’s study on the emerging Asia middle class shows that when asked whether respondents were protected against finance risks of medical incidents, significant portions indicated that they were not protected and faced major financial stress or that they were insufficiently insured (see Figure 1).
Figure 1: Protection against financial risks of medical incidents (%)
Source: Peak Re Consumer Survey 2022. Results are based on samples from China, India, Indonesia, Malaysia, the Philippines, Thailand and Vietnam
Insurance awareness and insurance penetration
Financial literacy
To better understand and mitigate under-insurance or non-insurance has remained a key focus of the global insurance industry. There is no easy fix, as multiple sources, including social norms and cultural factors, affordability, accessibility, and availability reasons, regulatory issues, and other market barriers, are behind the phenomenon.One frequently cited argument is the lack of insurance awareness, which can be defined as “the ability of having the knowledge and understanding of what is insurance and how it works”.[4] In order to analyse its contribution to underinsurance or non-insurance, it’s important to look at financial literacy, as this is often a precursor to the level of insurance awareness.
Based on the findings of Peak Re’s Consumer Survey 2022, self-rated financial literacy is rather high among emerging Asian middle-class consumers, particularly against their counterparts in advanced markets. For instance, only around 36% of emerging Asian respondents professed “not at all knowledgeable” or “slightly knowledgeable” about finance, compared to a much higher 69% from advanced emerging markets. Expectedly, the younger segment, those between 25 and 39 years old, are typically more confident about their financial acumen. This finding lends credence to the hypothesis that insurance awareness in emerging markets should be at least at the same level as in more advanced markets.
Insurance awareness and ownership
Measuring insurance awareness in practice is challenging. If based on product awareness, it was found that insurance awareness in emerging Asia is generally high for mainstream products like health and accident, motor, and life insurance. Awareness is much lower for niche or relatively new products, like personal cyber insurance. There are idiosyncratic factors. For example, the availability of national pension schemes could reduce the need for private annuity products, leading to low awareness of the availability of such products from private sector insurers.Insurance awareness – loosely defined as knowledge about the particular insurance product available in the market – strongly correlates with ownership. Figure 2 below shows the correlation, measuring the ownership rate against awareness for 11 personal insurance products across five South and Southeast Asian markets. Products that are highly aware of, like health insurance and accident insurance, also reported the highest level of ownership, or lower “ownership gap”.
Figure 2: Insurance awareness and insurance ownership
Source: Peak Re Consumer Survey 2023.
Note: Each dot represents a personal line (both P&C and L&H) product in a specific market. The five markets are India, Indonesia, Malaysia, the Philippines and Thailand. The diagonal line in the chart represents the 45% line and the hypothetical maximum ownership rate given a certain level of insurance awareness.
What does this mean?
Financial literacy is high, but it doesn’t mean insurance awareness is equally high or evenly applied across different insurance products. Awareness of insurance, how it works, and its benefits varies across different products. Raising awareness of insurance will encourage more ownership, but not necessarily for those already well-known products. Figure 2 further shows that raising awareness at a low level will only yield a lower-than-proportional increase in ownership. The biggest benefit is likely to be achieved between the high-to-medium awareness range.Ultimately, the usefulness of this analysis rests on our ability to leverage this knowledge to further insurance penetration, particularly among those vulnerable segments of society.
Yet, why did some products, such as those with medium awareness, fail to achieve higher ownership? We will look into critical illness (CI) insurance as an example.
The purchase journey of critical illness insurance
Critical illness insurance is widely available across emerging Asian markets and has seen robust growth over the past decade. Thanks to relentless promotion by insurers, awareness of CI is relatively high (though not as high as health and accident insurance in general but still respectable), while ownership is typically only half of awareness or less. For example, 51% of middle-class respondents in the Philippines said they were aware of the product. Still, the ownership rate was only 19%.In order to better understand the role of different factors in explaining ownership, we tried to follow the purchase journey to identify where there are “leakages”.
Figure 3 summarises the findings on the CI purchase journey. Some 40% of consumers are unaware of the product; thus, they were excluded from ownership. The leakage in the purchase journey is relatively small. Around 10% of consumers in the survey who are aware of CI insurance say they have tried but failed to purchase the insurance due to factors like complex application, complicated underwriting or poor customer services, among others. A more significant portion, some 25% of the total, did not consider CI because of factors like (true or perceived) lack of affordability, insufficient/inappropriate coverage, misperception of the features in CI insurance, passivity and procrastination, etc.
Figure 3: Ownership of critical illness insurance
Conclusions
Raising awareness supports insurance penetration, as up to 40% of consumers in our sample are unaware of some common insurance products like home insurance and CI insurance. However, the benefits will be most rewarding for those products in the middle of the “awareness range”. For highly and lowly noticed products, the marginal benefit will be smaller.Further, once consumers start the purchase journey, most would succeed in completing the purchase. The challenge remains to encourage more consumers to consider buying the relevant product. This could boil down to addressing some fundamental issues in insurance, like affordability and availability, but perception issues are also rift. Furthermore, there are issues with passivity on the part of consumers as well as procrastination.
[1] sigma No 3/2014 and sigma No 3/2023, Swiss Re Institute.
[2] sigma No 3/2023, Swiss Re Institute.
[3] See, for example, “Bridging the protection gap in emerging markets”, Peak Re, 25 March 2021.
[4] Stimulating Demand: The Supervisor’s role in building Insurance Awareness, A2ii, 18 July 2019.
