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Protecting future generations: A need to act now!

Source: Asia Insurance Review | Mar 2014

We all face different risks. But how we perceive and respond to such risks can differ greatly. 
 
There’s little doubt that risks seem larger, more complex and more interdependent than ever. And this can be clearly seen with two of the potentially biggest risks for Asia Pacific: 
 
The devastating effects of catastrophes and climate change already being felt across much of the region; and 
Changing demographics, with myriad implications for society and the economy.
 
Such risks keep evolving. As such they seem difficult to grasp or understand, and even harder to quantify so people, businesses and governments are seeking guidance on how to manage and protect against their impact.
 
Smarter, long-term thinking
The recent Global Risks 2014 Report published by the World Economic Forum, with contributions from Swiss Re, highlights these issues. And the solution, according to the report, is to build resilience through collective action and long-term thinking. 
 
This is a sensible way forward, yet history tells us that too often we do little, or nothing at all. Procrastination is one of the biggest challenges to any meaningful progress. 
 
Whenever Asian markets are hit by natural catastrophes, there are heartfelt calls to action. But rarely does this initial passion translate to a solution, and societies are left unprepared for the next storm, flood or earthquake. Procrastination also defines our response to ageing societies: a huge risk that we’re aware of, but most people are woefully underprepared for.
 
Protection gaps
As part of our 150 Year Anniversary, we asked 22,000 people in 19 markets about the risks that worried them the most. The results of this Global Risk Perception Survey show just how wide the gulf is between our perception and awareness of risks, on one hand, and the actions we take to protect ourselves against those risks, on the other. 
 
For example, 74% of respondents in Jakarta are convinced their neighbourhood has a high risk of being hit by a natural catastrophe within the next three years. But 56% say that their home is not insured against such events. The rift between perceptions and actions is even more pronounced in India, where 7 in 10 expect to face more extreme natural disasters in coming years. At the same time, 72% say they are not insured against damage from natural disasters, and 43% would either have to rely on themselves, or on family and friends to help out in such an event.
 
Asked which risks are most likely to materialise within the next 20 years, respondents across all markets are aware of the potential risks from an ageing society. Not surprisingly, Japan stands out with 61% of respondents saying it’s “very likely” that the proportion of elderly will become a major financial concern. But Swiss Re’s studies reveal a huge mortality and health protection gaps in all major regional markets.
 
Building resilience
It seems odd that society recognises the impending risks, but most of Asia Pacific is still grossly under-insured. This worries me. For instance, typhoon Haikui hitting China and the Philippines in 2012 caused a total economic loss of US$1.5 billion; but the insured loss was only $183 million. For the Japan earthquake and tsunami in 2011, the economic loss reached $210 billion while the insured loss was only $35 billion. 
 
Natural disasters are one of the biggest risks for many emerging markets and can hamper economic growth for several years. To cope better with the threat of natural catastrophes, societies should build resilience through risk mitigation and risk transfer.
 
Building resilience is of utmost importance. A holistic approach considering different aspects of national risk management is best, as is tailoring to the needs of individual markets to ensure that any risk solution is relevant. 
 
Societies will also need to consider the best mix of financing options that can help them quickly rebuild damaged homes, businesses and infrastructure. Overseas experiences, such as the Caribbean Catastrophe Risk Insurance Facility and MultiCat Mexico, show the viability and affordability of risk financing. And the more recently established Pacific Catastrophe Risk Insurance Pilot has already made a swift payout to Tonga towards recovery from Cyclone Ian. All that remains is for stakeholders to select the most suitable options for their situation.
 
Demographic time bomb
Many Asian markets also face a dire demographic challenge. China, for instance, saw its working population peak in 2010. There could be major socio-economic implications for such countries as the ageing population erodes national savings and limits economic growth potential. 
 
The scale of the challenge depends on individuals being adequately prepared for this scenario. Building the necessary financial resources takes decades, and young people need to start saving for their future now. Institutional changes, like occupational pension schemes and healthcare systems, will need to be implemented to provide for a growing elderly population. 
 
Open minds
The theme of Swiss Re’s 150 Year Anniversary is “Open minds connecting generations”. We must challenge perceptions and raise awareness of risks among the wider public. We should debate how we, as an industry, can work together to find some of the answers. 
 
When we work together, share ideas, and open our minds to what faces today’s communities and future generations, we don’t just see risks – we find opportunities.
 
I believe the message is clear. Meeting challenges like ageing populations and climate change requires the whole-hearted cooperation of all stakeholders. I’m confident insurers in the region are ready for the challenge, but let’s act now and not wait any longer.
 
Swiss Re is the 2013 winner for General Reinsurer of the Year and Life Reinsurer of the Year at the 17th Asia Insurance Industry Awards.
 
Mr Moses Ojeisekhoba
CEO, Reinsurance Asia
Swiss Re
 
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