Supply-chain resilience essential to economic stability

By Ahmad Zaki

A supply chain is only as strong as its weakest link, and there has been a slow shift towards improving the resilience of the global supply chain over the past few years. Brought about by rising US-China trade tensions and the sudden appearance of COVID-19, building resilience has become more urgent than ever.

Speaking during a panel on supply-chain risk yesterday afternoon, Swiss Re Institute chief economist Jerome Jean Haegeli pointed out that the global economy has been coming out of its deep recession in the third quarter of this year, but it remains at risk.

“We should also remember that before COVID-19, we were in a weak economic environment and the resilience of the supply chain was weaker, when compared to the 2008 financial crisis,” he said. “It is probably worth it to be more pessimistic when looking at the world’s economic growth because things will not go back to normal even if we have a vaccine. The structural damage has been done and the system we are living in is also changing.”

Rebuilding the chain

One of the ways supply chains are changing is through relocation and parallel supply chains, and by reshoring and staying closer to consumers. According to EU-ASEAN Business Council chairman Donald Kanak, global business sentiment ranked ASEAN as the location with the greatest opportunity. “Our survey this year had 53% ranking ASEAN number one, with the next closest region being China at 14%,” he said.

Forty seven per cent of survey respondents also admitted to considering reorganising their supply chains – and amongst those, 34% were looking towards ASEAN for their supply needs. Interestingly, Europe came in second at 20%, with Mr Kanak saying that it reflected a trend towards reshoring and ‘greening’ of supply chains.

However, most ASEAN governments are more focused on national attractiveness to foreign investments, which results in a fair amount of friction when it comes to supply-chain relocation, he said. “While tariffs have been reduced as a barrier across borders in ASEAN, non-tariff barriers have risen 60% over the past five years. ASEAN really needs to work on these frictions to attract supply chains.”

“ASEAN governments have been making progress in removing these barriers, but the changes are gradual. In order to keep up with the trends currently happening in the world, they would need to pick up the pace,” he said.

Supply-chain visibility was highlighted as an important factor in improving resilience by DHL Resilience 360 product director, risk monitoring Shehrina Kamal. “Most companies tend to have generally good visibility up to the first tier of their supply chain, but most of the disruptions occur in the deeper levels. The importance of acquiring the data of where the disruptions are happening, and to have it on hand when making decisions, is extremely important,” she said.

Given the many filings for insolvency in aviation and shipping companies over the past nine months, Ms Kamal also pointed out that companies should keep tabs on their supply-chain partners and discover how they might be affected by recessions or other economic conditions that might prevail in the countries they operate in. “It’s an important aspect of visibility, keeping an eye out on your supply chain and moving in to take action even before one of your partners becomes insolvent,” she said.

Staying financially prepared

Swiss Re head of public sector solutions APAC Vincent Eck said that governments in the Southeast Asian region have been paying more attention to and establishing (re)insurance protections as a solution for financial preparedness in case of future disasters.

“However, the more optimal solution would be investing more time and money into better understanding and better modelling of the impact of climate change on the economies, the communities and the governments themselves,” he said. “We are still missing the modelling capacity and a lot of the data. Governments do have these data and through PPPs and open, constructive discussion we should ultimately get this information we need.”

ILS here to stay, IFRS17 could affect product development

By Amir Sadiq

Insurance-linked securities (ILS) are likely to remain a permanent fixture of the reinsurance market even if there are limits on how much capacity they can provide, said AM Best Analytics EMEA and Asia Pacific managing director Greg Carter during the rating agency’s insurance market briefing yesterday during the SIRC 2020 RE-MIND.

How big a part of the market ILS will be in the future is likely to be limited by the types of risks that will suit securitised structures.

“To suit an ILS solution, the losses need to be modellable to a reasonable degree, predictable to a certain extent and structured around parametric triggers that indicate a loss event,” he said. “There’s a natural limit to how much capacity can be provided by ILS.”

“What we have seen with the losses over the last few years is that some investors have paused and thought about how committed they are to the sector, but it does still represent a good diversification, generally, from a lot of other asset classes.”

He added that while investors may have a reasonably good understanding of ILS, true losses and true experience might take a while for investors to fully understand, as with any new emerging class.


Mr Carter also discussed the potential implications of IFRS17 which, as a significant change in the way companies report their liabilities, will have significant impact on companies with longer term business, particularly life insurers.

With regard to the credit ratings of (re)insurers, he does not expect IFRS17 to have any major effects.

“If you change the reporting format of something, you do nothing to change the underlying economics of the situation. Our view is that IFRS17 in itself shouldn’t result in any changes in ratings,” he said.

He did, however, add two caveats to that statement.

“Firstly, when your record under a different format, you may see something new that wasn’t apparent in a company before. It may be that something emerges that was lying dormant and hasn’t been picked up by us and by other observers of the industry. I think that’s a very unlikely outcome, but you have to flag that as a possibility.”

The other, longer-term, impact to consider is how product development could be impacted once companies have to report under the new format.

Under IFRS17, contracts that are potentially loss making (or onerous as described by IFRS17) will need to have their losses recorded up front as a hit taken in year one, even if there is a chance those losses may be earned back in the future.

“That may change the product design for certain types of life insurance products. And if that happens, then you’re looking at a different market, different credit conditions in terms of the risks that companies are offering,” he said.

Reinsurance remains stable

AM Best also covered how reinsurance markets are faring during the pandemic and the general consensus is that the outlook for global reinsurance markets has remained relatively stable, as it has been for the last two years.

The global market faces uncertainty around potential COVID-19 losses and government interventions, market volatility and economic recessionary pressure. Fortunately, these are offset by a number of positive indicators.

“In terms of those COVID-19 losses, we do see them as being manageable and they are very well spread in terms of geographical impact and lines of business,” said Mr Carter.

Improvements in pricing at the primary insurance and reinsurance levels along with revised appetite from third-party capital and greater discipline from traditional reinsurers are also helping to cushion the impact of headwinds.

Pandemic will accelerate reinsurance price rises

By Ridwan Abbas

The COVID-19 pandemic has shown that (re)insurers can further improve their understanding of exposures, as well as offer more clarity on policy coverage.

Speaking to Asia Insurance Review recently, Allianz Re CEO Amer Ahmed talked about the flurry of court cases brought against insurers, especially in the UK and the US, on business interruption coverage for employers affected by the pandemic.

"What is never good is if there are different expectations so we need to ensure we have got clarity on what customers need and what insurers provide," he said.

In the wake of the verdict of the FCA test case in the UK, the Chartered Insurance Institute (CII) urged the insurance industry to focus on product governance, including having greater clarity of product wordings. It had also called for improvement in the advisory process to help clients better understand both the insurable and non-insurable risks they face.

Mr Ahmed believes that more protection can be provided for future pandemics through greater public-private partnerships.

"I am confident we can find the solutions with a wide group of stakeholders, and we have examples of this in the past in terms of terrorism and environmental liability risk.

“Another area where a broader effort is needed to mitigate risk is, of course cyber, where demand for protection is expected to increase as more businesses digitalise their operations.

"The nature of the risk challenges the core principles of insurability and so while traditional insurance is one tool in the toolbox, it won't be enough and the overall framework requires the industry to work with other bodies like governments to develop larger-scale risk-management solutions," he said.

Heading into the January renewals, Mr Ahmed expects the momentum for a market hardening to pick up, with the pandemic being a tipping point for a long overdue correction in rates.

"We have been in a soft market for some time but we know that returns on capital have not been too high and there is added pressure from low interest rates. I believe COVID-19 will just accelerate the upward push on reinsurance pricing."

Supporting digital healthcare growth in Asia Pacific

As health institutions continue to battle the pandemic, virtual healthcare solutions are becoming increasingly popular in Asia Pacific. Beazley’s Mr Dindson Phua shares some insight.

Medical professionals are keen to relieve pressure on over-stretched resources, while many patients welcome ways to manage their health from the safety of their own homes. But are companies aware of the risks they face in this brave new world of digital healthcare provision?

Across Asia, the digital health services have seen growth skyrocket since the start of the COVID-19 health crisis. In Indonesia, the growth of telehealth has been supported by the government as a way to support stretched healthcare services. And in China, 24% of respondents had used telemedicine prior to the pandemic, however, during the two-month period from December 2019, Ping An Good Doctor, the largest healthcare platform in China, experienced a 900% surge in new users, and an 800% surge in online consultations. In Singapore, the MyDoc platform has seen a 160% increase in patient visits since the start of this year.

Such shifts are timely in a region where traditional health service delivery and financing models often struggle adequately to serve residents of remote communities.

Transformative approaches

The field of diabetes care and management is a good example of where digital approaches are transforming care. As the population ages, so the prevalence of diabetes is increasing in Singapore and S$1bn ($732m) is already been spent annually tackling this disease. As the incidence rises, so patients are being encouraged to take greater ‘ownership’ of their condition via the use of wearable monitors and mobile apps which provide patients with better control over their disease and help relieve pressure on overstretched health services.

But while the benefits of adopting technology-led services are clear, they are not without risk.

A study published last year by Nanyang Technological University into the most popular diabetes apps available found many lacked crucial functionality. Worryingly, many lacked real-time guidance on what to do for dangerously high or low blood sugar meaning users could suffer severe health complications unless urgent action is taken.

Even where an app has the functionality to help the user manage their condition, the reliance on technology increases risk and complexity. A popular blood glucose-monitoring app providing real-time monitoring for type 1 diabetes sufferers, for example, suffered a system outage overnight and ceased sending warnings to patients. Many patients did not find out about the problem until they started to feel unwell.

These scenarios expose some of the issues that arise where traditional insurance solutions meet innovative new industry sectors. If the system outage had resulted in injury or death, the doctor who recommended the product, the product designer and possibly the software platform providing the online service could have been drawn into compensation claims.

Online risks

In our experience, healthcare and lifestyle professionals are likely to be well-versed in medical malpractice, bodily injury and professional liability exposures, however, many are unaware of the risks that arise when they move their business online, such as data privacy and protection, cyber risk, technology product liability and media liability risks.

As an industry we need to raise awareness of the opportunity that digital health offers by highlighting the new business models and risk profiles that it creates. We also need to break down traditional insurance siloes and rethink how we create more service driven cover that addresses the full spectrum of risks whilst avoiding potential coverage gaps.

With the pandemic set to be with us for some time, 2021 will be both a challenging and exciting time for healthcare in Asia. Whatever the future holds, it seems clear the insurance industry has a significant role to play in helping to build sustainable and effective technology-led healthcare services that can be accessed, cost-effectively, even in Asia’s most remote and poorest regions.

Mr Dindson Phua is a virtual care underwriter with Beazley

Systemic risk: Learning from COVID-19

The deep and wide-ranging impacts of COVID-19 have highlighted the potential severity of systemic risks. Munich Re Singapore and SEA CEO James park talks about the crucial lessons reinsurers in Southeast Asia can learn from the pandemic, and how they can be better prepared to deal with systemic risks in the region.

World suffers $75bn CAT losses in first half of the year

By Ahmad Zaki

Global natural disaster events during 1H2020 caused total economic losses estimated at $75bn - 25% lower than the 2000-2019 average of $98bn. Meanwhile, insured losses were estimated at $30bn - 5% higher than the 20-year average of $28bn. These totals are preliminary and will change as losses continue to develop and were reported in Aon's Global Catastrophe Recap.

Of the insured losses, 77% were caused by severe weather and 69% of the insured losses incurred in the US. This represents a global protection gap of 60%, especially significant in Asia; while the global economic losses were lower on average, analysis showed that losses in Asia were 67% higher than average, while insured losses were down by 46%. In total, the Asia Pacific region saw 78 Nat CAT events in the first half of 2020. This is compared to 28 in the US, 558 in EMEA and 44 in the Americas.

Natural disasters were responsible for approximately 2,200 fatalities during the first half of 2020, significantly below the long-term (1980-2019) average of 39,800 and the median of 7,700. Flooding was the deadliest natural peril during the period, having been responsible for 60% of the death toll.

The total of 207 global natural disaster events recorded by Aon’s catastrophe model development team, Impact Forecasting, for 1H2020 was above the 20-year average of 184 and the median of 189. There were at least 20 separate billion-dollar economic events during the first half of the year – led by the US with 10 events; Asia Pacific with five events; Europe, Middle East and Africa with three events and the Americas with two events.

Cyclone Amphan, which killed 133 people in India in May, was the costliest economic event of 1H2020, causing an estimated $15bn in direct damage loss. Seasonal monsoon floods in China caused $5.6bn in economic losses and 119 deaths. A severe weather event in the US from April 10-14, which killed 38 people, was the costliest insured event, with claims totalling nearly $3bn.

The first six months of the year were marked by many smaller- and medium-scale disasters, which impacted a large number of communities globally. From a peril perspective, there was an unusually low number of significant earthquakes in 1H2020.

Severe weather contributes most to long-term losses

The largest long-term contributor to 1H global insured losses is the severe weather peril, with notable growth over the past two decades. Its 2020 total was the second highest after the record year of 2011, said the report.

Climate change continues to show its effects on the planet – 1H2020 is the second warmest period on record, sitting at 1.07 degrees Celsius above the 20th century mean.