Greater use of technology and support from third parties is improving risk visibility for APAC insurers, driven largely by regulatory demand and the urgent need to manage expanding private market portfolios, new research from Clearwater Analytics, the most comprehensive technology platform for investment management, shows.
Its study with insurance asset management executives at firms with total assets under management of $3.82 trillion found 75% say risk visibility at their organisation has improved in the past two years. Almost all (95%) rate their firm’s risk visibility as excellent or good.
Key reasons driving the improvement in risk visibility are greater use of platforms enabling them to integrate data from multiple sources, as well as being able to revise models and analytics to adapt to changing market conditions. Notably, regulatory compliance demands are the top driver of technology spending among APAC insurers, making enhanced risk visibility a business imperative.
The senior executives at asset management arms of life and health insurers and general insurers based in Hong Kong, Singapore, and Australia, plus executives at third-party investment firms working for life insurance carriers, also highlighted greater use of specialist third parties as a key reason for the improvement in risk visibility.
The surge in private market appetite is dramatic. The table shows how APAC insurers see the risk/reward level of asset classes changing over the next 12 months, with a striking 73% expecting private equity and venture capital risk/reward levels to increase significantly – far ahead of other asset classes.
Percentage of APAC insurance executives who are expecting risk/reward levels to change:
However, nearly one in five (18%) of firms questioned say risk visibility has deteriorated over the past two years, with a switch to more sophisticated investment and trading strategies and expansion of the range of asset classes they invest in cited as the main reasons for the decline. It is notable that 40% of the third-party firms say their visibility has deteriorated compared to just 6% of life/health firms and only 2% of general insurers. This highlights the challenges external asset managers face in this rapidly evolving market.
Firms which have seen a deterioration in risk visibility also point to cuts in technology investment, challenges in integrating data, and cutbacks in staff as explanations for the decline.
“APAC insurers are working hard to improve risk visibility with technology and support from specialist third parties key to the improvements over the past two years,” said Shane Akeroyd, Chief Strategy Officer and President of Asia Pacific at CWAN. “Improved risk visibility is critical as organizations increasingly see opportunities in private markets, with risk/reward levels for private equity and venture capital investments, expected to improve significantly in the year ahead. Making full use of enhanced technology and platforms that can integrate data plays a central role as firms expand the asset classes they invest in, particularly given the regulatory pressures are driving technology spending across the region.”
