Asia has often bourne the brunt of global economic losses from catastrophes, at $US74 billion the region was hit with 47% of global economic losses last year, only 16% of which was insured – but governments are increasingly counteracting these losses by introducing schemes and regulations to up the impetus for catastrophe coverage growth, according to Fitch’s latest Asian reinsurance market briefing.
Growing economic losses from catastrophes in Asia as frequency of weather-related events is combined with rapid urbanisation and development remains a key concern for the region.
However, Fitch Ratings noted that increasingly governments are stepping up to the challenge of protecting development gains through growing re/insurance cover; Japan, China, Indonesia, and Sri Lanka were highlighted in the report as examples of governmental action to grow re/insurance markets and penetration levels.
Earthquake insurance uptake is increasing amongst residents in Japan following government initiatives to improve the residential earthquake schemes, said Fitch.
In Indonesia progress is seen in domestic reinsurers having prepared for expansion by growing capacity well beyond regulatory requirements through purchasing catastrophe retrocession cover.
“Indonesia’s domestic cession policy has led to more risks being retained domestically, with most local reinsurers holding catastrophe cover of around 1:400 return periods. This is above the 1:250 regulatory requirement, providing reinsurers’ with some ability to absorb catastrophe losses amid industry expansion,” Fitch explained.
Sri Lanka is a country growing increasingly risk prone as changing weather patterns bring heavier bouts of rainfall; last year the government first purchased national disaster cover and this year the government has further boosted its re/insurance cover with a 30% increased, growing “the National Insurance Trust Fund Board to LKR15 billion for 2017-2018,” Fitch said.
While China Re, the national insurer, is assisting re/insurance market growth and cover uptake by having set up a catastrophe research centre in June this year that aims to service the country’s industry with a platform for information sharing.
Economies in the Asian region are among some of the fastest growing in the world, however, their development stands to be regularly set back with the threat of climate change causing increased frequency and intensity of weather events.
Two major catastrophes that struck Asia last year; Japan’s Kumamoto earthquake, and China’s Yangtze River flood accounted for $U.S. 52 billion in economic losses, according to Swiss Re, only around 10-11% of which were insured.
As governments become increasingly aware of their risk profiles and the need for proper management of these risks, they are stepping up efforts to improve re/insurance initiatives – creating demand and market conditions that will lessen the world’s biggest protection gap.
For global reinsurers, this means growth opportunities are ahead for the region in coming years, but as ever, moving into this often tightly regulated space remains the challenge.
