The managing director of the Monetary Authority of Singapore (MAS), Ravi Menon, called for a renewed focus on building innovative index-based and parametric solutions for effective transfer of disaster risk throughout Asia to step up efforts to close the region’s protection gap, in a speech at the Institute of Catastrophe Risk Management (ICRM) Symposium, Channel Newsasia reported.
The protection gap, being the difference between insured and economic losses post-event, is particularly high in Asia, which last year, was home to nearly half of total global economic losses, out of which only 16% were insured.
In the developing Asian countries less than 5% of economic losses were insured, said Menon.
“We must put in place mechanisms for the effective assessment, management, and transfer of disaster risks. Advances in technology, innovation, research, and market integration put us in a strong position to address these challenges,” said Menon, Channel Newsasia reported.
The MAS executive said innovative re/insurance offers which use index-based and parametric insurance could be pivotal to closing the protection gap in the region; “These make pay outs based on catastrophe events hitting pre-defined parameters such as hurricane wind speed or earthquake magnitude, thus removing the need for loss adjusters to survey the extent of losses.”
To improve disaster risk transfer in Singapore, Menon said the ICRM, a leading Asian research institute in catastrophe risk, has set up a Singapore Natural Catastrophe Data Analytics Exchange, a system which aggregates sources of data such as economic loss and exposure and drone and satellite data to create a comprehensive database of Asia-Pacific natural catastrophe risk.
The ICRM has been involved in 16 core research projects, such as conducting seismic analysis for Sumatra and flood risk assessment for Jakarta.
To improve insurers access to an integrated ASEAN market, Menon said “last year ASEAN member states made a commitment to liberalise by 2025 the cross-border supply of international Maritime, Aviation and Goods-in-Transit (MAT) insurance, catastrophe reinsurance and remaining classes of reinsurance.”
“The majority of member states have already committed to liberalise MAT insurance and are aiming to substantially liberalise catastrophe reinsurance by 2019,” Channel Newsasia reported.
However, protectionism is a stance adopted by many Asian countries, and rating agency Fitch said in a recent Asian reinsurance market report that this may place obstacles in the way of re/insurance market development; “This may alter risk- reward dynamics and the extent of foreign interest in local markets, limiting the diffusion of knowledge, pricing know-how and risk diversification,” said Fitch.
Asian re/insurance regulators have continued the trend towards localisation and protectionism to stop capital outflow from insurance premium cedance, with this year seeing India join the ranks of countries introducing further “order of preference” rules which require insurers to give local reinsurers and branches of onshore foreign insurers first ‘right of refusal.’
Fitch said in its Asian reinsurance briefing, this protectionist stance may benefit the countries’ local reinsurance industry growth in the long-term, but could stifle market growth over the short-term.