In the last decade, Asia accounted for almost half of the world’s economic losses from climate change and natural disasters, amounting to $1.24tn. Bridging this insurance protection gap will require the combined efforts of governments, industry and academia.
We need to raise awareness of catastrophe risks in the region, increase the availability of data that enables insurers to price risks adequately and create innovative risk transfer solutions that can help countries in the region mitigate disaster risks.
To address the lack of quality catastrophe exposure and loss data in Asia, the Monetary Authority of Singapore launched the Natural Catastrophe Data Analytics Exchange in partnership with the industry, in 2016. Led by the Nanyang Technological University’s Institute of Catastrophe Risk Management, NatCatDAX fuses top-down economic data from satellite and remote sensing technologies with bottom-up industry loss data. The result is a high-quality, objective and widely accepted data and analytics platform.
The platform supports better quantification of catastrophe risks in Asia and accelerates the development of innovative risk financing solutions, including parametric and insurance-linked solutions. The NatCatDAX platform will also form the foundation of the Asean Disaster Risk Financing and Insurance Phase 2 programme, which focuses on developing a high-quality and objective natural catastrophe database. This will be used to build knowledge and harness risk advisory expertise to design innovative risk financing solutions.
In 2019, Singapore launched the Southeast Asia Disaster Risk and Insurance Facility with several other Asean member states and Japan, supported by the World Bank. Located in Singapore, SEADRIF is a regional facility providing Southeast Asian countries with targeted disaster and climate risk solutions. The first product, to be launched this year, is a flood risk insurance pool to provide immediate financing to Laos and Myanmar in the aftermath of a natural disaster.
SEADRIF will look into launching other risk financing solutions to provide coverage for more Asean member states against different perils, including developing a public asset financial protection programme to support reconstruction and recovery efforts.
Beyond insurance and government risk pools, MAS has also taken progressive strides towards developing Singapore as the leading insurance-linked securitisation hub in Asia. These include a supportive regulatory regime, and launching an insurance-linked securities grant scheme to defray 100% of upfront issuance costs. This has helped to grow the ILS ecosystem and market in Singapore.
To date, Singapore’s ILS regime has supported 11 catastrophe bond issuances. These include the first Asian sovereign cat bond (issued by the World Bank’s Capital at Risk programme) listed on the Singapore Exchange in November 2019, and the first pan-Asia multiperil cat bond in December 2020. MAS will continue to explore ways to enhance our regulatory, corporate and bond listing regimes to support a wider range of ILS risks, including pandemic, cyber and climate risks.
As Asia emerges from the devastating effects of Covid-19 and natural disasters, we will need to strengthen our long-term financial resilience against these structural risks, as well as new and emerging ones such as cyber risks. Partnerships will become increasingly critical in addressing the protection gap in Asia, supporting sustained growth and economic development and enhancing the region’s resilience.
The Global-Asia Insurance Partnership was launched in Singapore in November 2020. It is a partnership between policy-makers and regulators, industry and academia, and focuses on risk management and insurance in Asia. The GAIP will focus on pandemic and climate risks as a start, and seeks to produce actionable research insights, create innovative risk financing solutions and develop a new generation of insurance talents with skills in areas such as big data analytics and artificial intelligence.
As Asia continues to ride the wave of innovation and technological advancement, Singapore looks forward to working in partnership with the industry, governments and academia towards sustainable and inclusive growth, and development of innovative risk transfer solutions in the region.
Lim Cheng Khai is Executive Director, Financial Markets Development, Monetary Authority of Singapore.