Hong Kong-based global reinsurer, Peak Reinsurance Company Limited has published Peak Insights 2019, analysing the financial aspirations and priorities of emerging middle class in Asia, and the many vulnerabilities that could thwart their financial resilience.
The report, Access challenges to financial services in emerging Asia: an opportunity for now, reveals that the emerging middle class in Asia is in general underserved by both the social welfare system and insurance companies.
AT RISK OF POVERTY
Emerging middle-class households may have limited access to financial services, which leaves them with insufficient financial protection and under prepared for sudden large expenses, exposing them to the risk of falling back into poverty.
Meanwhile, the primary source of funding to cover unexpected large expenses still primarily come from their own savings and income, borrowings and disposal of assets.
MIDDLE CLASS LEFT BEHIND
Arina Tek, Vice President, Market Research and Analysis at Peak Re is the author of the report.
She says public schemes play a substantial role in protecting the lowest-income households, but the report finds that the emerging middle class seems to be left behind.
‘Some households are even no longer eligible to benefit from free public schemes,’ Tek says.
‘The private sector can and must cater to the growing and more complex protection needs of the emerging middle class.
PROMOTING RISK PREVENTION AND TRUST
To attract more households to purchase insurance, Tek says intermediaries and risk carriers need to promote risk prevention and mitigation tools, facilitate access to financial protection tools and increase these households’ trust in insurance.
The report also suggests insurance companies rethink their approach to emerging middle class, taking into consideration their saving patterns, vulnerabilities and real needs.
‘Providing professional distribution channels to these communities will increase their willingness to purchase insurance,’ she says.
‘Fast claims settlement, on the other hand, will protect them from the deterioration of their financial safety net as most of them are holding low-liquidity assets.’
- The emerging middle class is underserved by both the social welfare system and the financial industry
- The emerging middle class is more vulnerable to financial distress, as housegolds are not well protected financially and hold a percentage of illiquid assets such as livestock, jewellery and property
- The demographic relies primarily on their own savings and income, borrowings and disposal of assets to finance sudden large expenses, long-term care costs and retirement.
- Not all households have a bank account. Thus, cash is the preferred option of payment for premiums and for receiving claims for those excluded from the financial infrastructure
- Since the emerging middle class is more likely to face cash-flow and liquidity issues, fast claims reporting and settlement are key elements contributing to trust and insurance purchases
- Beyond traditional covers, insurers can be more innovative in creating products based on the households’ priorities, saving ability and methods.