Read the latest edition of AIR and MEIR as an Interactive e-book

Oct 2022

Climate change is top priority again

By -
Source: Asia Insurance Review | Dec 2021

This year’s SIRC took place on a virtual platform once again, as various COVID restrictions made a physical conference impossible. But (re)insurers were done talking about the pandemic, and instead looked towards the risks that are more imminent – climate change and sustainability.
By Ahmad Zaki and Amir Sadiq
Lawrence WongApart from the COVID-19 pandemic, climate change poses short- and long-term existential, economic and social risks to the region and the insurance industry must respond by working systematically with policymakers, said Singapore minister for finance and Monetary Authority of Singapore deputy chairman Lawrence Wong, during his keynote speech at the opening of the conference.
“The COVID -19 pandemic has disrupted global economic activity, upended livelihoods and exposed the fragilities of our global health and social infrastructure,” he said. At the same time, he said that the global system continues to contend with existential challenges which includes climate change and cyber risk.
Mr Wong mentioned how growth in the region would need further protection of lives, wealth and assets. Highlighting the growth of Asia’s insurance market, which he said was nearly twice as fast as the global market and is forecast to grow at more than 8% per annum until 2030: “The insurance industry can support the region’s economies in seizing opportunities in Asia in two transformative areas, which are climate change and digitalisation,” he said.
Moving towards nature-based solutions
During a panel discussion, National University of Singapore (NUS) Centre for Nature-based Climate Solutions director and professor of conservation science, technology and policy Professor Koh Lian Pin said nature-based solutions are integral to achieving the goals set in the Paris Agreement.
Referencing research done by NUS, he brought up how nature-based solutions that encompass forest protection, restoration and management can play a big part in reducing carbon emissions. Protecting tropical forests, for example, can potentially avoid 2bn tonnes of carbon emissions each year.
And then there is the financial aspect as well. Assuming conservative carbon-pricing scenarios, he said that investing in and protecting threatened forests across Asia Pacific could potentially generate returns of $25bn per year for the next 30 years.
World Economic Forum head nature and biodiversity Akanksha Khatri said a report from the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services has shown that climate change is responsible for only 11-16% of nature loss, meaning that it is insufficient just to mitigate climate change and the world has to focus on nature-based solutions and the growing nature-positive narrative.
She added that there is also a $10.1tn opportunity, and an opportunity to create 395m jobs, if the world can move towards more nature-positive pathways.
However, Swiss Re chairperson public sector solutions Veronica Scotti said that one of the main challenges right now is that the world does not fully recognise in its economic systems the value of nature.
She said that while nature-based solutions can be profitable, (re)insurers need to arm themselves with the right methodology, tools and metrics that will allow them to recognise the value of nature and added that the under-valuation of nature is part of why nature conservation, restoration and management are not as advanced as they otherwise could have been at this point.
Responding to climate change
In a series of presentations towards the end of the event, Allianz Reinsurance CEO Holger Tewes-Kampelmann talked about some of the changing trends in Nat CAT events over the last few years.
He highlighted how damage and loss from wildfires have been rising rapidly as a direct result of hotter and drier weather and that this is something that requires more work and research from the (re)insurance industry.
He also pointed out that shifting rainfalls are resulting in growing flood risks, something that has been very apparent in recent months in Europe, with recent floods in Germany creating estimated losses of EUR1.1bn ($1.25bn) for Allianz Group alone.
In his presentation, Aon Asia Pacific CEO reinsurance solutions George Attard said that uncertainty around climate change creates opportunities for the (re)insurance industry.
He said the industry is central to ensuring resilience and mitigation, and it can do this through facilitating capital flows to green projects and technologies on both the asset and liability side. He brought up how a recent study by Blackrock found that reinsurers represent approximately $30tn of assets and are now looking at prioritising sustainable investing.
On the liability side, he highlighted the importance the industry’s ability to put a price on risk as that price can send signals on the impact of mitigation and adaptation activities.
Descartes Underwriting head of South-east Asia Robert Drysdale talked about the role of parametric insurance in providing cover against Nat CAT events, particularly flood, drought and wildfire in Asia Pacific.
He said that parametric insurance is able to provide extremely wide coverage while not requiring standard restrictions such as deductibles, sub-limits or property damage/business interruption (PDBI) exclusions.
He added that the wider use of parametric insurance does not need to be a zero-sum game and that parametric (re)insurance capacity can be used to optimise traditional programmes and that there is flexibility to structure parametric it to cover specific gaps in PDBI programmes.
The industry needs to blend data sources
When it comes to creating models, industry loss and exposure data is still the critical piece, before adding in other sources of data, said PERILS head of Asia Pacific Darryl Pidcock.
“Across the industry, people are scrambling to use different forms of data. But the question, of course, is what does that mean?” he said. “We know about satellite data and remote-sensing data, but I would argue that … it’s almost a transition period we’re going through, where we still need that traditional industry exposure loss data, but the real time scientific data that needs to be overlaid is becoming more and more critical, especially as there is pressure to make decisions.”
The data that the industry collects – rainfall, weather patterns, average temperature, crop yields – helps open up markets where previously an insurance product was not available and no historical data can be found, said Aon head of agriculture, Southeast Asia Christopher Core.
“There was no expertise in distributing a product. There’s no expertise in loss assessment, no expertise in the rates to charge. And with new data, whether it is remote sensing, soil moisture for droughts or NDTV, this new data does allow a government to give a sort of a broad level safety net to the farmer so that if there is a disaster comes along, they will get a pay out and they will have money to rebuild the resources to farm again next year. Insurance can really help make the agriculture industry more sustainable.”
However, he noted that one of the barriers in insurance is that better data does not automatically equate to better insurance products. “You have to remember that at the end of the day, the insurance product is for the consumer. Now for insurance companies and reinsurers, if you get very good data, it becomes more and more straightforward to price in their eyes. It’s very transparent. But in order for it to be a real success, the farmers have got to want it and understand it and they’ve got to buy into it.”
The design of the product might not actually fit what a farmer’s loss is. However, insurers do have an advantage in Asia – many of these farmers are not financially savvy and are not used to insurance products.
“They’re not used to buying insurance and so they will not have a product of indemnity that they can compare to. They won’t necessarily fully understand the basis risk, but a huge education process is required by insurers, by the government that is subsidising all of the premium, and hopefully the farmer will see it for what it is. It’s not going to solve every need, but it is better than what they had before and it will give them some protection in extreme events,” he said. A 
| Print | Share

Note that your comment may be edited or removed in the future, and that your comment may appear alongside the original article on websites other than this one.


Recent Comments

There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.