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May 2024

Preparing for catastrophe

Source: Asia Insurance Review | Oct 2023

Nigel CookNatural disasters are rising, and catastrophe losses are following suit, rising at a rate of between 5% and 7% since 1992. This is a global issue, but insurers in Asia must be particularly alive to the threat, Sedgwick’s Mr Nigel Cook elaborates on how insurers can improve the situation.
 
 
In 2022, catastrophe losses in APAC amounted to over $80bn, with geographic and economic realities bringing greater risks. Proximity to the geothermically volatile ‘ring of fire’ brings increasing earthquake risk, whilst gaps in early-warning mechanisms and large populations located close to the coastline or below sea level increase the danger.
 
The situation is challenging, but not insurmountable. As head of major and complex loss for Sedgwick in Asia, I’ve seen first-hand the devastation these catastrophes can cause, and learnt what is needed to respond. As insurers, we are often the first line of response to disasters, and it’s vital that we take stock of the current situation, identify emerging trends, and prepare to meet these challenges.
 
Rising risks
To understand how to prepare, we must understand the current landscape. 2022 was a relatively subdued year for catastrophe claims in APAC, with economic losses of $80bn, out of which $11bn were insured, 35% lower than the 21st century average.
 
This may seem encouraging, but the frequency and severity of catastrophic events are rising. Pakistan, India, Southern China and South Korea all saw record rainfall and significant flooding, whilst there is evidence of wildfire risks increasing due to deforestation and rising temperatures. The proximity of several countries to areas of high tectonic and volcanic activity presents a persistent threat of earthquakes and eruptions. These factors contributed to 6 of the 10 costliest catastrophic events taking place in APAC in 2022.
 
Therefore, we must look beyond economic losses and understand wider trends. Disasters can strike anywhere, and as they grow in frequency and severity, so does the risk they will affect densely populated and heavily insured urban areas.
 
The protection gap
Understanding levels of insurance is vital to grasping the current Asian catastrophe insurance landscape. Where 73% of catastrophe losses worldwide were uninsured, in APAC, the number is 86%. This ‘protection gap’ highlights the vulnerability of communities, and the need for solutions.
 
The factors behind the gap are complex. Economic realities must be acknowledged, with communities on subsistence wages unable to afford insurance. But although this may make protection parity unlikely, there is scope to narrow the gap. The surge of demand for life insurance post-covid is instructive – after experiencing a pandemic, communities across Asia were motivated to protect themselves in case it happens again. This was partially driven by the emergence of simplified, mobile-first policies.
 
If a similarly devastating earthquake or flood hits, an analogous upswing in demand for catastrophe cover is likely. Although actively promoting a policy that is likely to be claimed against is illogical, now is the time for insurers to refine their catastrophe offerings to position themselves as insurers of choice for when catastrophe cover is needed.
 
Despite the gap, coverage varies significantly regionally, with cities and commercial centres seeing far higher insurance penetration. This means that if catastrophe does strike, the level of response needed can vary dramatically.
 
Speed and capacity
When catastrophe strikes, rapid response is both a moral and a business imperative. Failing to act fast not only exacerbates the difficulties faced by victims who may have lost their homes and livelihoods, but can seriously damage an insurers brand, especially when disasters bring media scrutiny.
 
However, this is easier said than done. Asia is vast, so mobilising adjusters necessitates a presence across the continent. This is why Sedgwick has ensured its presence in Asia is spread across 45 offices in 9 countries, allowing us to quickly get boots on the ground wherever a major claims event strikes. But for Nat CAT insurance, breadth is not enough, insurers also need depth.
 
As these events can happen anywhere, the potential for a claims event affecting millions is an ever-present threat. Therefore, it is vital that insurers and their partners have the capacity to adapt to unprecedented claims volumes, both in terms of technical and administrative claims processing, and raw manpower. At Sedgwick we can draw on 650 employees located across Asia, and our global network of adjusters when needed.
 
Specialist expertise
Nat CAT events take many forms, and there is no ‘one size fits all’ approach. A typhoon that damages an offshore wind farm will require entirely different skills to an earthquake that hits a city.
 
Insurers must have immediate access to a comprehensive network of specialists for every eventuality allowing them to focus on processing claims, not finding the right expert after the fact. At Sedgwick, we have established a global and domestic network of forensic engineers, environmental experts, and surveyors that can be quickly mobilised no matter how complex the claim.
 
This expertise also extends to those who monitor trends and even pre-empt Nat CAT events before they happen. Ensuring you have access to meteorologists and seismologists who monitor tectonic activity and weather patterns can be invaluable to protect policyholders, mitigate losses, and prepare for catastrophe claims.
 
Technological measures
Major claims events create challenges not just at the loss site, but behind the desk. In the past, manually responding to and logging fragmented letters, emails, and phone calls created bottlenecks, but technology can help lighten the load and help make the process more efficient and streamlined.
 
Implementing a centralised claims management system that gives adjusters, brokers and insurers visibility of their policy book saves time, reduces admin, and allows claims to be processed faster. At Sedgwick we are continuing to invest in these scalable digital solutions. For example, Smart.ly which allows policyholders to easily log claims online, ViaOne, which can take data from Smart.ly and other sources to generate reports and present a centralised claims dashboard, and MySedgwick, which gives claimants visibility of progress.
 
As API-driven solutions, these tools can interact with each other and even integrate into insurers proprietary systems- cutting down on admin and fragmentation and saving crucial time for insurers and claimants.
 
Local presence
Nat CAT claims can require global expertise and cutting-edge technology, but cannot replace local knowledge. Particularly in Asia, where cultural and regulatory norms are nuanced, any response will require the input of local professionals. Local authorities often lead the response, so communicating effectively with emergency services and government officials is key to co-ordinating an effective, compliant response.
 
There is also a vital human element.
 
When interacting with people who have lost everything, understanding the local language and culture is non-negotiable to reassure claimants and treat them with compassion and empathy. Disasters bring local and international communities together, and it is here that reputations are made.
 
Conclusion
The data is clear. Nat CAT events will continue to rise, so it is vital that as an industry we prepare now, to ensure that processes are in place to handle an increased volume and severity of claims.
 
These points have a common thread: extreme challenges on a global scale cannot be tackled alone. By collaborating with expert partners, sharing best practice, and acting with respect and empathy the industry can rise to the challenge and develop the processes needed to protect people and businesses across Asia. A 
 
Mr Nigel Cook is the head of major complex loss – Asia at Sedgwick Singapore.
 
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