More than nine out of 10 ( 92% ) of insurers in Hong Kong plan to boost risk profiles over the next two years and are turning to automation and advanced technology to manage the consequence, according to a recent research report.

Notably, 52% of insurance asset management executives at Hong Kong firms, which have with total assets under management of US$1.31 trillion, say the risk profile of their investments had increased over the past two years, finds the report by investment management tech platform Clearwater Analytics. By comparison, in Singapore, 84% say risk profiles have increased in the past two years.

“Hong Kong insurers are embracing risk and plan to increase the risk profiles of their investments over the next two years, building on increases to risk profiles over the past two years,” says Shane Akeroyd, Clearwater’s chief strategy officer and Asia-Pacific president. “This shift is deliberate and strategic – driven by the pursuit of better returns in private markets and supported by a new generation of technology that gives insurers the visibility and control to manage that risk with confidence.”

Automation, the report notes, was identified as the key method for managing risk, well ahead of measures like increased regulation and stricter capital controls.

As well, the regulatory environment, the report points out, is a key catalyst for that technology investment. When asked to identify the main drivers of increased technology spending on asset liability management, insurers point to regulatory demands, including heightened requirements for stress testing, solvency reporting and risk disclosures.

“This clearly points to the need for more automation, which is seen as the primary way to manage risk for the industry,” Akeroyd states. “Insurers recognize that modern ALM [anti-money laundering] requires speed, precision and integration that legacy systems simply can’t deliver anymore. Improving ALM makes a real difference in reducing errors, seizing opportunities and, ultimately, being more competitive.”

The specific asset class driving Hong Kong’s risk escalation, the report points out, is unmistakable. A striking 80% of Hong Kong insurers expect private equity and venture capital risk/reward levels to increase significantly over the next 12 months – far ahead of any other asset class and the highest such expectation recorded across the three markets surveyed. It is this pursuit of private market returns that is pushing risk profiles higher and demanding better technology to match.

Greater use of technology and support from third parties, the report shares, are improving risk visibility for Hong Kong insurers, driven largely by regulatory demand and the urgent need to manage expanding private market portfolios. More than half ( 54% ) say risk visibility at their organization has improved in the past two years. Almost all ( 98% ) rate their firm’s risk visibility as excellent or good.

The greater use of platforms is central to this improvement, say surveyed managers, as they enable the integration of data from multiple sources and allow firms to revise models and analytics to adapt to changing market conditions.

The two equal priorities for technology spend over the next 12 months, according to the report, are clear as 60% of insurers will focus on integration of artificial intelligence ( AI ) and machine learning technology, while the same number will improve portfolio management systems. By comparison, in Singapore, research finds, 58% identify increased use of data analytics and integrating AI and machine learning technology as the top priorities.

Beyond AI and portfolio management, Hong Kong’s broader technology agenda includes increasing the usage of data analytics is a priority for 58% of insurers, the report highlights, while 56% say improving the customer experience on the front end is a priority. Around half will prioritize implementation and expansion of cloud technology.

Around 18% of firms questioned say risk visibility has deteriorated significantly over the past two years, with a switch to more sophisticated investment and trading strategies and an expansion of asset classes invested in cited as the main reasons for the decline.

Firms that have seen a deterioration in risk visibility also point to cuts in technology investment and challenges in integrating data as explanations for the decline.

And there are concerns, the report reveals, about the time and resources insurers are spending on different aspects of portfolio analytics and risk management. Around 90% believe more time and resources should be spent on cross-asset risk aggregation, and nearly nine out of 10 ( 86% ) say the same about manual processes and legacy tools.

“The firms that address these gaps now – in cross-asset risk aggregation and legacy tool modernization – will be significantly better positioned,” Akeroyd adds, “as private market portfolios grow more complex and regulatory demands intensify across the Asia-Pacific region.”