ASEAN ECONOMIC COMMUNITY: OPPORTUNITIES AND CHALLENGES FOR INSURERS

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1 ASEAN ECONOMIC COMMUNITY: OPPORTUNITIES AND CHALLENGES FOR INSURERS 1

2 Welcome Welcome Heng Loong Cheong Partner You are on mute A link to a recording of the webinar will be available We can take questions by using the chat function, we will respond to your questions by after the webinar 2

3 Introduction Heng Loong Cheong Partner, Hong Kong, Hong Kong Heng Loong Cheong Partner 3

4 AEC: Welcome Background and Policy Context (1) Heng Loong Cheong Partner ASEAN 5 ASEAN 6 CLMV Indonesia ASEAN 5+Brunei Cambodia Malaysia Lao PDR Philippines Myanmar Singapore Vietnam Thailand "Three Pillars" ASEAN Economic Community (2015) ASEAN Community (2020) ASEAN Political Security Community (2015) ASEAN Socio- Cultural Community 4

5 AEC: Welcome Background and Policy Context (2) "Key Characteristics" ASEAN Economic Community Heng Loong Cheong Partner Single Market and Production Base Highly Competitive Economic Region Region of Equitable Economic Development Region Fully Integrated into the Global Economy Free flow of goods Free flow of services Free flow of investment Freer flow of capital Free flow of skilled labour Competition policy Consumer protection Intellectual Property Rights Infrastructure Development Taxation E-Commerce SME Development Initiative for ASEAN Integration (IAI) Coherent Approach towards External Economic Relations Enhanced participation in global supply networks. 5

6 AEC: Welcome Implementation by 2015 dream or reality? (1) Heng Loong Cheong Partner In recognition of diversity in economic and social backgrounds AND the transitional economies of the "CLMV" states: Common objectives and single end goal for ALL ASEAN member states Different timelines and milestones for each member country depending on individual circumstances / readiness for reform (i.e., "pre agreed flexibilities") Liberalization through "ASEAN minus X" formula where: member countries that are ready can liberalize first; and be joined by others later Respect for: national policy objectives; and differences in the level of economic and financial sector development among individual member countries Flexibility of member countries in setting their own preconditions for liberalization and establishing own timelines 6

7 AEC: Welcome Implementation by 2015 dream or reality? (2) Heng Loong Cheong Partner 7

8 AEC: Welcome Implementation by 2015 dream or reality? (3) Heng Loong Cheong Partner Liberalization covers 4 "modes" of supply for the delivery of services in cross-border trade (as defined by the WTO) Mode 1: Cross-border supply Mode 2: Consumption abroad Mode 3: Commercial presence Mode 4: Presence of natural persons AEC is a "work in progress" Overall score of 68.2 out of 100 in latest (March 2012) AEC Score card Majority of ASEAN member states already complying with benchmark for foreign equity participation (e.g., 80% in Indonesia, 70% in Malaysia) BUT cross-border trade in insurance services (Mode 1) still widely restricted 8

9 AEC: Implementation by 2015 dream or reality? (4) Heng Loong Cheong Partner 2 "track" development of ASEAN insurance sector? 1 for "regional champions" competing with their global / regional peers across national borders 1 for all other (re) insurers mainly serving local needs / the interests of domestic policyholders 9

10 AEC: Welcome Likely / possible opportunities and challenges for insurers There should be no restrictions at all to Mode 1 (Cross-border supply) and Mode 2 (Consumption abroad) Only permitted exceptions if: bona fide regulatory reasons (e.g., public safety) AND this is agreed by ALL member countries on a case by case basis So, in theory insurers should be able to: Use a branch located in another ASEAN country to write policies for local policyholders (Mode 1) Be approached by policyholders from another ASEAN country, and write polices for such policyholders (Mode 2) 10

11 AEC: Welcome Likely / possible opportunities and challenges for insurers- Indonesia (1) Indonesia has committed to liberalize its insurance sector by 2015 Foreign equity participation quite liberalized- up to 80% permitted Foreign ownership can exceed 80% if the following requirements are satisfied: there is a mandatory need to increase capital; the Indonesian shareholder cannot contribute its pro rata share of the additional capital; such increase is not applied for during the initial establishment stage; and it is by way of share subscription and the number of shares held by the Indonesian shareholders remain the same (while such shareholding may be diluted) 11

12 AEC: Welcome Likely / possible opportunities and challenges for insurers- Indonesia (2) If a foreign insurer would like to issue insurance policies to local residents in Indonesia, a local entity must be established Any party (including foreign insurers) wishing to carry on insurance business or provide insurance to Insured Objects in Indonesia requires a license from the Financial Services Authority (FSA) "Insurance business" is very broadly defined. Includes "marketing and distribution of insurance products" "Insured Objects" is also very broadly defined. Covers almost all kinds of insurance services 12

13 AEC: Likely / possible opportunities and challenges for insurers- Indonesia (3) Cross border supply of insurance services to Insured Objects in Indonesia through a foreign insurer is not allowed, except where no local insurer is capable or willing to provide the coverage in question Whether consumption abroad by Indonesian policyholders is permitted depends on the residence status of the individual: outside Indonesia on a long term/ temporary basis 13

14 AEC: Likely / possible opportunities and challenges for insurers- Thailand (1) Thailand has not specifically committed to liberalizing its insurance sector by the end of 2015 Foreign investment threshold is very low - generally 24.9% and may go up to 49% with permission from the Office of the Insurance Commission (OIC) The insurance sector has made little tangible progress to realize the AEC goals so far 14

15 AEC: Likely / possible opportunities and challenges for insurers- Thailand (2) A foreign (non-admitted) insurer must be licensed in Thailand to carry on insurance business in Thailand Non- admitted insurers are not allowed to market their direct insurance products (reinsurance excepted) Non- admitted insurers cannot, directly or through any local intermediaries, facilitate the entering of insurance contracts No restrictions on Thai nationals on the purchase of nonadmitted insurance 15

16 AEC: Likely / possible opportunities and challenges for insurers- Thailand (3) The OIC published an AEC roadmap in March 2014 The AEC roadmap addresses 3 main areas i. Enhancing financial stability of insurers; ii. iii. Developing a competition strategy to boost growth; and Developing fundamental infrastructure necessary for business expansion Specific details and precise commitments underlying the broad concepts yet to be announced 16

17 AEC: Welcome Likely / possible opportunities and challenges for insurers- Malaysia (1) Malaysia has committed to liberalize its insurance sector by 2015 Insurance industry in Malaysia is relatively open to foreign investors Foreign equity ownership limit of 70% for Malaysian insurers and reinsurers No foreign equity ownership limit for Malaysian insurance intermediaries 17

18 AEC: Welcome Likely / possible opportunities and challenges for insurers- Malaysia (2) Foreign insurers are not permitted to carry on insurance business in Malaysia unless licensed Meaning of "carry on an insurance business" Soliciting and advertising of insurance policies in Malaysia by unlicensed foreign insurers not allowed Providing insurance service through local intermediaries: Insurance agents: unless prior written approval from the Bank Negara Malaysia (BNM) is obtained, foreign insurers cannot provide or market their products in Malaysia through an insurance agent Insurance brokers: foreign insurers can be approached by approved Malaysian insurance brokers to issue life policies for clients in Malaysia 18

19 AEC: Likely / possible opportunities and challenges for insurers- Malaysia (3) The FSA does not prohibit consumption of insurance services abroad if the execution is done outside Malaysia Approval is required from BNM for direct placement outside Malaysia of insurance of property located in Malaysia (including any ship / aircraft registered in Malaysia) 19

20 AEC: Welcome Likely / possible opportunities and challenges for insurers- Singapore (1) Singapore has committed to liberalizing its direct non-life insurance, reinsurance and retrocession, insurance intermediation and services auxiliary to insurance sub-sectors by end of 2015 No limits on foreign ownership of Singaporean insurers and insurance intermediaries 20

21 AEC: Likely / possible opportunities and challenges for insurers- Singapore (2) Non- admitted insurers are not permitted to carry on insurance business in Singapore, whether directly or through insurance intermediaries Non- admitted insurers are not permitted to advertise its activities to promote their insurance products or solicit insurance business within or outside Singapore Consumption abroad of life insurance by Singapore residents is allowed provided that such sales do not render the offshore life insurer's business activity to be carrying on of insurance business in Singapore 21

22 AEC: Likely / possible opportunities and challenges for insurers- Singapore (3) Currently, no tangible measures to achieve the remaining steps towards liberalizing the insurance industry Further discussions with ASEAN insurance regulators in 2015 are likely to determine Singapore's next steps 22

23 AEC: Likely / possible opportunities and challenges for insurers In Summary Varied progress across the ASEAN member states Insurance sector still heavily regulated by domestic laws of member states A great degree of liberalization needed to meet the 2015 milestone date 23

24 Q&A Welcome Heng Loong Cheong Partner THANK YOU! 24