In an interview with Reinsurance News, Victor Kuk, Head of Property & Casualty Reinsurance SID at Swiss Re, highlighted the escalating crisis of natural catastrophes in Asia.
Kuk pointed out that over 30% of the global nat cat events in 2022 occurred in Asia, causing staggering economic losses. He emphasised that this alarming trend is driven by a confluence of factors, including rapid economic development, urbanisation, and expanding populations.
“Particularly in Asia, nat cat exposures are growing larger as increasing urbanisation, particularly around coastal areas, are driving economic growth–asset values are accumulating rapidly. These exposures, which are increasingly attributed to secondary perils, are growing faster than insurance premiums,” Kuk noted.
Kuk underscored the increasing significance of understanding secondary perils, like floods, which have historically resulted in substantial economic losses in Asia.
“For example, Asia has historically suffered the highest flood-related economic losses. In 2011–2020, economic losses from flood events averaged almost USD 30bn annually (including the Thailand flood of 2011).”
The interview also shed light on the unique case of Japan, a nation perennially exposed to nat cat events such as typhoons and earthquakes.
Despite its long-standing tradition of climate adaptation measures and leveraging historical data, recent events like typhoons Jebi and Hagibis served as “wake-up calls” due to the prominence of secondary perils. Japan’s protection gap, particularly in seismic risk, stems from significant underinsurance despite robust risk mitigation measures.
“…based on the Swiss Re Institute’s Nat Cat resilience index, Japan’s Nat Cat resilience score rose from 22% (2022) to 24% in 2023, albeit it fell in rank (2022:17th, 2023:23th).”
Kuk emphasised that Japan’s experiences offer valuable insights for emerging Asian markets, emphasising the need for quality data and forward-looking models to adapt to evolving climate risks.
Addressing the challenges faced by both advanced and emerging Asian markets, Kuk highlighted the necessity of rigorous risk modeling and disciplined underwriting.
“To enable re/insurers in narrowing the protection gap, it is crucial that risk premiums adequately reflect the market situation alongside continuous assessment of losses and potential downside. Re/insurers will then be able to develop sustainable offerings in a timely manner.”
Kuk pointed out that while there have been improvements in catastrophe risk modeling in Asia Pacific, progress still lags in the face of rapid changes.
He raised concerns about the inconsistency of available catastrophe models for secondary perils, which can lead to underestimation of losses. Kuk urged the industry to commit to sourcing better data, sharing information transparently, and proactively incorporating new insights into risk assessment.
Looking ahead to 2024, Kuk acknowledged the evolving risk landscape, including recurring high nat cat losses, geopolitical tensions, inflationary pressures, and other challenges.
“… as risk awareness and exposures grow, we also expect an increase in the demand for protection, which translates to growth opportunity for the re/insurance industry. Asia is growing faster and becoming wealthier as urbanisation continues to drive economic growth–this translates to a larger nat cat exposure.
“Hence, our outlook for APAC’s re/insurance industry is generally positive amid growing demand. Notwithstanding, we need to be mindful of the need for risk-adequate rates; adequate returns commensurate with risks are essential to maintain sufficient capacity,” Kuk noted.
“This year, we have seen a return towards a more sustainable equilibrium in risk sharing across the insurance value chain, which is a necessary trend we expect to continue,” he concluded.