As Asia’s increasing economic prosperity continues to drive its countries to further develop and expand infrastructure, reinsurers are faced with one of its most important and complex tasks of the 21st century: ensuring that these regions and its people are protected from the inevitable impact of future natural catastrophes.
The Managing Director of Global Markets at Peak Reinsurance, Chris Kershaw, believes that the private sector is vital to the successful narrowing of the so-called protection gap.
In an interview with Reinsurance News at the annual meeting of the reinsurance industry in Monte Carlo, Kershaw explained why he does not think it is for the government to sponsor these kinds of initiatives.
“It needs to be either a private/public partnership, or it needs to be the private sector that does this, because if the private sector does it, there is a pressure to make it sustainable, and unless it’s sustainable, it won’t succeed,” he said.
“Now, the other thing that governments can be doing, and this can happen at both a national government level or a local government level, is they can be looking at pre-event financing so that there’s less strain on their budgets post-event.”
Indeed, these sorts of initiatives could prove important in a country such as Indonesia, where infrastructure spending doubled to $29.8 billion between 2015 to 2017; and in Thailand, where the government has committed to huge public infrastructure projects as part of its flagship Eastern Economic Corridor (EEC) development policy.
Kershaw continues, “There’s more forethought that goes into what happens when a typhoon goes across a particular island in the Philippines, for instance, when there could be more thought around what we could put in place that’s going to make recovery faster, and how can we finance that.”
It’s also important to note that, as Kershaw points out, the protection gap is not unique to Asia, “I think we need to be very conscious of just how prevalent that gap is in society, whether we’re talking about Europe, the U.S, emerging South America, or we’re talking about Asia. It’s just in Asia it seems to be a little more of an obvious focus that people have.”
When we examine the ways in which the industry can decrease, narrow and eventually close Asia’s protection gap, it becomes evident that effectively communicating the importance of insurance to individuals will be key.
“First of all, I think we have to reinforce the value that we bring to society in what we provide,” stated Kershaw.
“We need to be much more forthright and forthcoming in actually communicating the benefits of insurance, and communicating the benefits of reinsurance to our insurance clients and potential clients, as to what that can mean for their business, what that can mean for the communities in which they live.”
Communicating effectively the value of insurance to, say, hard-working rice cultivators in Central Java, will undoubtedly prove hugely important in successfully aiding the uptake of policies throughout these regions.
Kershaw sees the industry achieving this through innovative thinking and the introduction of new ideas and approaches; “What we need to be thinking about as an industry, is: what do we need to reinvent, to make available so that it can be simple, affordable, effectively delivered and effectively managed,” he explained.
Kershaw added that, by making it simple to pay an affordable premium, and by making it simple to settle a claim quickly, “We can put that family back on its feet.”
Parallel to the provision of practical and effective coverage to individuals, Kershaw briefly outlined a future solution which will see Peak Re working with a tourism-dependant region recover post-event.
“Currently, we are working together with partners to introduce a concept which would enable that sector to recover, getting people back to work and the local economy restarted,” explained Kershaw. “As such we also are working on solutions to provide protection to areas of national or global importance.”
“Imagine historical monuments, exposed to NatCat events. Insurance and – reinsurance capacity and expertise for that matter – can help to re-establish those historic sites and get the tourism back on track after an event.”
Such an initiative may have proved radically beneficial for, say, the Nepalese city of Kathmandu, which was devastated by a powerful earthquake in 2015.
A survey some 30 months later found only 12% of the reconstruction money was distributed, and those without land were locked out of financial support.
“This is not about a direct solution – that’s not a reinsurer’s task – but to think about the linkages and jointly provide a viable solution to make societies exposed to such events more robust,” concluded Kershaw.