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Re/insurers must address Asia Pacific’s protection gap or risk irrelevancy: Guy Carpenter

30th October 2018 - Author: Matt Sheehan

Michael Schwarz, Head of Public Sector for Asia Pacific at Guy Carpenter, has claimed that the re/insurance industry will “jeopardize its relevance” if it does not make progress in closing the protection gap in the region.

protection gap image“Our industry should be a critical contributor to increasing community resilience against volatility and shocks to their environments caused by catastrophic events and disruptions brought to economic development,” said Schwarz

The United Nations Economic and Social Commission for Asia and the Pacific has predicted that economic losses from natural disasters and weather catastrophes will reach US $160 billion per year by 2030, with only 8% of losses likely to be covered by insurance.

Narrowing the protection gap is also particularly important for ensuring economic stability in the Asia Pacific region, where the vast majority of economic losses are absorbed by the public sector across different levels of sovereignty, Schwarz explained.

“Given the pace of growth across the Asia Pacific region, the (re)insurance industry should become more dynamic to keep up with urbanization and growth rates,” he said.

“The industry jeopardizes its relevance if it does not make progress on the issues of insurance penetration and narrowing the public sector risk financing gap,” Schwarz continued. “The industry in the Asia Pacific region must understand buyer needs and recognize the barriers that have to be overcome in positioning risk transfer solutions.”

Property damage and business interruption losses to corporates represent only part of wider picture of catastrophic events, with impacts ranging from destroyed infrastructure and damaged physical state assets, to costs related to immediate disaster response and relief measures.

Schwarz added that dealing with these challenges will require new forms of public-private partnerships, in which re/insurers provide customised solutions directly to the public sector, thereby allowing governments to build resilience on sovereign, state and municipality levels.

“These types of public-private risk-transfer partnerships offer a huge opportunity for the insurance industry to grow,” he said. “Some governments in the region, for instance the Philippines or in the Pacific Islands have already started to transfer natural catastrophe risk to the (re)insurance and capital markets.”

Insurance-linked securities (ILS) and the use of data, analytics and modelling in recent functional risk transfer mechanisms are also helping to provide abundant risk capital to benefit communities and spur change in the landscape around flood, droughts and other perils, Schwarz noted.

Guy Carpenter and GC Securities currently work with around 100 public entities around the world in an effort to narrow the global protection gap by bringing private sector capital to bear.

“We are committed to expanding our industry’s role in managing risk for the public sector and reducing taxpayer burden for unfunded exposures,” Schwarz stated.

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