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Issue Brief: Using Insurance to Hedge Asia's Future

Issue Brief: Using Insurance to Hedge Asia's Future

Posted on Monday, December 23, 2013

Asia (excluding Japan) is grossly underinsured. The development of long-term institutional investors, including the insurance industry, should be given policy priority.

As the demographic profile and economic structure of Asia changes, with some countries aging rapidly, it is important to shift the funding model away from short-term credit and banking towards long-term investments that sustain Asian growth and efficiency, whilst reinforcing social and financial system stability. As long-term institutional investors, the insurance and reinsurance industries are essential for the real economy as providers of social security and risk capital and as stabilizers and shock absorbers for the financial markets. Regulations, by not differentiating between banks and non-banks in their different capital and liquidity needs, are preventing long-term investors, such as insurance companies and pension funds, from participating in long-term project financing of infrastructure, energy and green technology. Policymakers and regulators need to re-focus on strengthening the Asian insurance industry to support Asia's long-term development agenda by working together with industry to:

  • Promote the capacity and capabilities of the insurance industry in infrastructure financing as this remains key to increasing efficiency and productivity over the long term in Asia.
  • Examine the long-term challenges of population aging: to support pension and healthcare reform, incentivize voluntary private savings schemes and develop market solutions to manage longevity risks.
  • Strengthen the capacity of the insurance sector to improve institutional investing in the capital markets by removing portfolio restrictions that constrain effective asset diversification, risk-taking capacity and ability of insurance companies to become stabilizers and shock absorbers in financial markets.
  • Consider tax benefits to promote savings via insurance schemes and to introduce greater competition and innovation in the insurance industry.

Disclaimer: The views expressed in this report are those of the author and do not necessarily reflect those of the Fung Global Institute. The author is solely responsible for any errors or omissions.


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