Asia’s insurance industry is set to boom thanks to rising incomes, a growing middle class and ageing populations, explaining the allure behind Prudential’s costly bid for AIA, analysts said.

And cultural biases that have made insurance a taboo subject in Asia, because of its association with death, are also fast disappearing, they said.”The prospect for growth is tremendous,” said Francis Koh, a finance professor at the Singapore Management University. “The income levels of most Asian countries are rising. Asians are also ageing and living longer. These two trends indicate the need for more insurance for health and retirement,” he told AFP. “As the cost of education increases over the years and parents would want their children to have tertiary education, there will be an increase in the need for education insurance plans.” Koh said Asia’s younger generation has become more open to taking up insurance policies, compared with their elders who superstitiously shied away from the subject. “Just like the way the older generations of Chinese would not wear black as it is a sign of mourning, this cultural norm does not hold for the younger generation as black is cool.”

Britain’s Prudential and AIA, the Asian arm of troubled US giant AIG, last week agreed to a deal worth 35.5 billion dollars that would be the insurance sector’s biggest-ever takeover. The buyout would transform Prudential into the world’s top non-Chinese insurer by market capitalisation, ahead of major competitors Allianz and AXA. Prudential’s stock price has slumped as investors fret over a massive share dilution to fund the deal, and over whether the company is overpaying for AIA. But the acquisition would see Asia generate the lion’s share of Prudential’s global earnings, just as the region is taking off for the industry as a whole.

Consulting firm McKinsey forecasts that Asia will account for 40 percent of the growth in the global life insurance industry in the next five years. Credit appraiser Moody’s Investors Service said a merged Prudential-AIA would have a leading position in seven Asian markets — Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, Thailand and the Philippines. Prudential chief executive Tidjane Thiam said the region was the “most attractive opportunity in our industry today”, partly because of Asians” massive savings. “Growth of the middle class in China, India and Indonesia will result in higher demand for greater protection through life and general insurance,”said Koh, the Singapore professor.

In Asia, in the absence of stronger government safety nets, private insurance remains the only protection for many against catastrophic loss. In China alone, a recent McKinsey analysis showed that consumers in the world’s most populous nation “are under-protected against accident, disease, disability and death”. Total life insurance premiums in China in 2008 accounted for only 2.6 percent of gross domestic product, lower than Taiwan’s 12.9 percent, Hong Kong’s 10.6 percent and even the 4.0 percent in India, it said. But with greater affluence is coming greater demand for insurance products to cover a child’s future university education. And meeting the needs of Asia’s greying population is a major driver for the industry.

Tan Hak Leh, deputy president of the Life Insurance Association of Singapore, says that Asia’s elderly population will far outstrip the rest of the world’s in 40 years. The number of Asians above 60 years old is estimated to quadruple by 2050 to 1.2 billion people, or four times the number of senior citizens in the United States and Europe combined, he told a conference in Singapore last month.

Singapore, March 7, 2010 (AFP)