Building resilience for the fast-changing Asia

Our world view is typically shaped by what we see, our upbringing and who we interact with. As far as natural catastrophes go, it´s usually an afterthought. Even the most resilient of societies usually believe the "big one" will never happen to them.

But the reality is we are more likely to be affected by a natural calamity than we believe. That's because nearly every third day somewhere in Asia, someone will lose a loved one, see their most prized and personal possessions being swept away or reduced to rubble, or will witness their livelihoods disappear from a typhoon, quake or flood.

One in three natural disasters in the world take place in Asia, and they can literally bring societies to their knees and can bring trade to a halt that has a far-reaching effect on global commerce.

Last year, Typhoon Mangkhut cut a path through the Philippines, Hong Kong, Macau and the Chinese province of Guangdong. It made landfall in the Philippines as a super-typhoon, caused hundreds of deaths and left the country’s agricultural belt in tatters. As more and more of Asia becomes affluent and moves toward coastal areas, the potential for devastation increases. The "supersize" combo of bigger buildings, more people per square km and little or no natural blockage can be devastating.

A large part of Asia sits on the Pacific "Ring of Fire". It is a large "ring" of active tectonic plates stretching over 40,000 km where over 90% of the world's seismic activities occur. It is responsible for over 80% of the world's most devastating temblors and all but three of the biggest volcanic eruptions.

While the big-ticket storms and quakes keep grabbing the headlines, "secondary" perils can have more of an impact. And it is becoming more commonplace. What are these so-called "secondary" perils? They are natural occurences that are "moderately" severe and occur fairly frequently, and could include heatwaves, landslides, torrential rainfall or localised flooding. While we are still referring to them as "secondary", the impact can be severe.

That's in part as a result of climate change. The increased frequency and severity of warm and dry conditions has led to greater incidence of wildfires and drought, the Swiss Re Institute said. The 2019 edition of the World Economic Forum’s annual ‘Global Risks Report’ lists extreme weather events and failure of climate change mitigation among the coming decade's  biggest threats.

But there are other reasons too. Economic development, urbanisation and a move to coastlines all add to the a more, pardon the pun, perfect storm for "secondary" perils. These expose citizens and property to more frequent extreme weather events. Our research shows secondary perils caused over 60 per cent of all insured natural disaster losses in 2018.

Asia, therefore, is in a shaky spot.

Asia is less resilient to natural catastrophes

Simply put, we're more exposed. And in many places, we lack the capacity or the resources to deal with events that occur. A recent report by the Swiss Re Institute estimates that the global natural catastrophe Insurance Resilience Index has only improved marginally over the past few decades. Asia accounted for 41% of the USD 222 billion global natural catastrophe protection gap in 2018. In emerging Asia, the gap is almost 358% of the region's property premiums. There isn't enough insurance to deal with natural catastrophes that impact us. Of course, its not just about insurance cover, we also need to work on more resilient societies where better planning and building standards help to mitigate risk as much as possible. This is also where strong and planned disaster recovery systems are in place to reduce losses and get lives and businesses back to normal as soon as possible.

Our goal is to make this region a better place for all of us to thrive. And we know nations want the same for their people. For example, China this year unveiled a comprehensive document to protect its agricultural supply lines and lift millions out of poverty through food security. The parametric solutions we have deployed are designed to do precisely that – ensure food security and supply lines face minimal disruption through rapid parametric payouts thus avoiding lengthy claims processes and a delay in societies getting back on their feet again.

But as emerging economies grow, private insurance purchases don't often follow, resulting in a decline in resilience. The largest protection gap today pertains to earthquakes (USD135 billion), followed by floods (USD50 billion) and storms (USD37 billion), SRI says.

The report also highlights that developed Asia is the only region worldwide where the natural catastrophe protection gap is the largest among the three core risk areas examined (natural catastrophes, mortality, and healthcare). In fact, emerging Asia has the largest aggregate protection gap for the three risk areas combined (USD 456 billion), representing almost 80% of the region's total.

Urbanising but under-protected

Every year, more and more people in Asia move to urban areas. It's only a matter of time before more of us in this region start to live in cities than the country. By 2026, over half of the region’s 4.5 billion population will live in cities and Asia will be home to 60 per cent of the world’s megacities, the UN estimates.

Today, over 800 million Chinese call cities home, up from 200 million in 1980. In Southeast Asia urban migration to cities along coastlines – many of which sit on the Pacific "Ring of Fire" – make them more vulnerable. Inconsistent urban planning, poor sanitation, improper waste disposal and a higher concentration of people and buildings present a far greater risk than ever before.

The call of the cities has also changed how fast we build. In doing that, are we leaving ourselves more exposed to what was there before and the potential that something may not have been done right? Two of our solutions – Environmental Impact Liability (EIL) and Inherent Defect Insurance (IDI) – are there to make us more resilient to impact that may have lay dormant all these years. 

Despite their high likelihood, natural catastrophes remain underinsured

What we do know is that there is more than enough capacity in the insurance market to absorb this risk. So, what do we need to do because at the moment we are failing to get the message across and tell them the value of insurance!

We have to go out there and attempt to end the perception that these events are rare. Flexible options that protect against more immediately conceivable risks pegged to extreme weather triggers could help customers realise the value of insurance. Swiss Re and China's Groupama AVIC helped insure China’s Mao County with a parametric solution resulting in payouts upon satisfying pre-agreed conditions, should they be hit by floods, landslides or even heavy rainfall.

Secondly, relying on historical loss experience may have sufficed in the past, but this is no longer the case. We need to develop more effective modelling tools that capture climate patterns and environmental shifts as they occur in real-time rather than in hindsight. This is happening, but it needs to be more widely adopted.

Technology now helps us with regionalised models that help to assess risk precisely and in real time. Now, satellite imagery and cutting-edge algorithms make flood modelling a precise science. With this approach, we're able to help local insurers offer flood insurance protection to people who had never previously been covered. Likewise, we work with governments and city planners to make sure everyone has adequate levels of flood insurance and that flood defences are cost-effective and sustainable.

Finally, re/insurers can play an integral part in increasing socio-economic resilience through their investment activities. We're open to investing more in long-term infrastructure projects. The Swiss Re Institute estimates that global re/insurance assets amount to approximately USD 30 trillion and investing even a small portion of this to infrastructure projects could help stave off the catastrophic effects of future natural disasters.

Collaboration is key to building resilience

Of course, we can't do this alone, no matter how much capacity we have. These are real world problems, and we need to work together to develop real world solutions.  Cooperation between insurers, their reinsurance partners, and the public sector makes the world a more resilient place to live, grow and thrive. There is a real opportunity here to nurture accessible and dependable insurance through cooperation and partnerships, in a time when natural disasters are increasingly impinging upon our present and future. 

Climate change is an inherently complex risk for governments and society to deal with, as the argument for bold, urgent action against this threat often comes up against the fact that its impact may not be felt for years, or even decades. However, the potentially devastating effects of a natural weather event should loom large in rational calculations and present a strong case for greater insurance protection.