Insurers have to understand the diverse priorities different governments have in their disaster risk financing needs: some prioritise insuring public assets, some would prefer to develop private assets, while others would prefer to protect key assets and strengthen infrastructure, according to Dr Olivier Mahul, Global Lead of Disaster Risk Finance at World Bank and the Global Facility for Disaster Reduction and Recovery (GFDRR).
Speaking on the first day of the 14th Conference on Catastrophe Insurance in Asia yesterday, he said that the fact that public-sector financial needs are likely to be different from private sector perspectives is something that not everyone in the industry is aware of.
Yet, such understanding is necessary because collaboration between the public and private sector – combining private-sector expertise and public policy – is an important step towards physical and fiscal resiliency.
“Governments also need enough liquidity for livelihood assistance, including food security, in a post-disaster scenario,” said Dr Mahul. Having sufficient infrastructure in place for efficient emergency services and eventually beginning the rebuilding process are also main concerns for the public sector.
He pointed out too that most key decision makers in various ministries of finance around the world do not come from an insurance background. “We need to help them understand the importance of insurance, without getting too technical,” he advised.
Dr Mahul was joined at the conference by several other experts in the industry, who shared not only their insights on building a more physically and financially resilient society, but also their expertise in modelling and analytics.
Closing the gap
Mr Graham Jones, Co-Head of Strategic Advisory, Asia Pacific Region at Guy Carpenter, said the key ingredients to closing the Nat CAT protection gap is proper risk financing, addressing realities of human nature, unlocking the wealth of publicly available information and collaboration between the industry, various government bodies and NGOs.
“It is a well-known fact that insurance take-up rates spike high after a disaster and dwindle back down after a few years have passed,” he said. “People have short memories.”
Mr Alex Chen, founder and CEO of Asia Risk Transfer Solutions, said that the low penetration of insurance, which hasn’t been able to keep up with economic growth in Asia, is a problem that isn’t easily tackled. “We must realise that in rural parts of Asia, people might not speak English, or are illiterate. Even then, their local language might not match with the working language of the region.”
Continuous product innovation, including combining multiple catastrophe covers under one product, is just one step towards closing the gap.
Asia accounted for 40% of all economic losses worldwide due to natural catastrophes from the period of 1980 to 2015, said Mr Vineet Kumar, Head of the Cat Perils Asia Hub, Group Underwriting at Swiss Re. Yet it only accounted for 13% of all insured losses in the same period, he added.
The 14th Conference on Catastrophe Insurance in Asia, which ends today, drew some 90 delegates from around the world and is sponsored by the Singapore College of Insurance and catastrophe risk modelling company RMS. The conference is organised by Asia Insurance Review.