Hong Kong insurers in the midst of a dynamic transformation

According to the latest Global Financial Centres Index (GFCI) Report, Hong Kong is ranked in third place overall and first in the Asia Pacific for competitiveness.

Fuelled by strong local and international demand, Hong Kong’s insurance industry is at a strategic inflection point. The general insurance market in Hong Kong is projected to grow at a compound annual growth rate (CAGR) of 6.3% from $8.6 billion in 2024 to $10.9 billion in 2028¹.

“As we navigate uncertainties and technological advancements, insurance will increasingly serve as a critical tool for risk management and financial resilience,” says Ellick Tsui, Deputy CEO and CFO, CTF Life. “Our focus is on leveraging innovation to cement Hong Kong’s role as a premier global insurance hub.”

Insurers are flourishing in Hong Kong, but as the industry scales, new challenges are emerging.

For example, although a number of local insurers are achieving revenue and risk diversification by entering into new markets outside of Hong Kong, the lack of homogenisation across different countries can create added costs and complexity.

“Across Asia, markets are defined by having their own idiosyncrasies, regulatory requirements and cultural nuances,” says Fiona Horsewill, Global Head of Securities Services, HSBC.

Engaging with an asset servicer with a strong geographical footprint – and extensive local knowledge – will be a critical enabler if insurers are to grow their operations frictionlessly and cost-efficiently.

Changes to market structure also need to be taken into account by insurers.

Similar to many other global markets, Hong Kong is expected to transition to a T+1 settlement cycle in the next few years.² Shorter settlement cycles will reduce settlement and counterparty risk, leading to lower margin requirements, and allowing for firms to better manage their capital and liquidity.³ With 88% of cash equities globally by trade value on course to be traded on either T+1 or an even shorter settlement cycle in the next two years,⁴ moving to T+1 will be vital to ensuring that global settlement cycles across major markets are fully aligned.

This transition to T+1 is, however, likely to impact institutional investors, including insurers.

Asset servicers who have assisted clients with previous T+1 transition efforts in India, North America and now Europe, will be well-positioned to support local insurers with any migration that happens in Hong Kong (or elsewhere in Asia).

Once T+1 has been rolled out, most experts anticipate T+0 and even 24/7 trading will follow. “While rudimentary systems changes will help firms comply with T+1, they should be future-proofing, accordingly, so that their operations can cope with T+0 and eventually 24/7 trading. Asset servicers will be instrumental in making sure that insurers meet these requirements,” says Horsewill.

Client demographics are evolving too, and insurers must adapt.

Not only are consumers getting progressively younger and more tech-aware, but incumbents are facing mounting competition from virtual providers, many of whom are targeting previously untapped customer segments.

“There is a growing need for interconnectivity, real-time data and comprehensive reporting solutions – again, asset servicers can have a crucial role here. Asset servicers are helping insurance clients target a younger, more digital savvy demographic. To achieve this, asset servicers must offer insurance clients digital and user-friendly solutions,” notes Horsewill.

By collaborating with tech-enabled asset servicers, insurers will be able to provide customers with hyper-personalised solutions and real-time information delivered to them on smart devices via easy-to-navigate apps.

Insurers in Hong Kong are also making good progress on integrating artificial intelligence (AI) into their workstreams, using the technology to support them with their underwriting and claims, risk modelling, fraud detection, customer service and client marketing campaigns.

Together with enhancing client experience and risk management, AI – and its ability to reduce processing times – will also help boost productivity at insurers. This comes as a study by EY found that 55% of insurers believe that AI could facilitate savings of anywhere between 11%-20% over the next two years,⁵ all at a time when the industry is grappling with various cost pressures.

And finally, insurers must take into account the importance of operational resilience when scaling up their businesses and leveraging new technologies, such as AI - especially as threats like cybercrime are only going to get worse.

“The ability to harness new technologies and bring efficiencies will be crucial to the insurance and asset management industry,” says Lisa O’Connor, Global Head of Client Change, HSBC Securities Services. “But those industries must adapt and future-proof their operations against not only trends in technology but also the current global landscape.”

To minimise the risk of downtime and to safeguard customers, insurers must work with robust asset servicers, which take issues like business continuity planning (BCP) and operational resilience seriously.

“You only have to look at the last 12 months to be reminded how quickly things can change, and how operational resilience can be tested. When implementing a new business strategy or entering into a new market, contingency planning must be a priority,” comments Horsewill.

The insurance industry in Hong Kong is going through a transformational period, but the firms that adapt will be the ones that retain – and ultimately grow – their customer share. This means being quick to embrace market changes such as T+1 and dealing with shifting client behavioural trends through digitalisation. “Those providers which evolve with their customers will be the ones that thrive,” says Tsui.

International asset servicers, with close local market proximity and strong technology platforms, are well equipped to help insurers realise their growth potential moving forward.