Insurance capacity to cover natural disasters is adequately available in ASEAN, despite the region's considerable natural catastrophe exposure.
This was stated by Mr Henner Alms, partner at Faber Consulting, who was quoting comments from insurance executives in the region for the ASEAN Insurance Pulse 2021” report, released yesterday by Malaysian Re.
Mr Alms, one of the authors of the report, also said that although Nat CAT risks have increased, improved modelling capabilities have allowed ASEAN insurers to allocate their capacity more efficiently.
Among the various types of natural disasters, floods have been responsible for more than 45% of accumulated total Nat CAT losses of $137bn since 1990 in ASEAN – well ahead of other hazards such as storms or earthquakes, says the report.
Notwithstanding the region’s considerable natural catastrophe exposure, the executives interviewed for this year’s ASEAN Insurance Pulse regard all types of flood risk as insurable in principle. However, insurance penetration remains low and, in particular, the lower income sections of society which are most exposed to the risk rely mostly on government support.
"We are seeing an increasing demand for natural catastrophe cover in the ASEAN region," said Mr Zainudin Ishak, president and CEO of Malaysian Re. "Climate change is impacting peoples’ risk perception. They realise that weather patterns are different than in the past, sea levels are rising, coastal flooding increases or that the monsoon season seems to have shifted. While insurable assets have increased as well, clients seek protection from natural hazards. However, the lower income sections of society remain largely uninsured."
The ASEAN Insurance Pulse is an annual research publication by Malaysian Re, now in its fifth year. This year's edition focuses on natural catastrophes and flooding. Climate change and urbanisation are expected to further aggravate the frequency and severity of floods and inundations. The impact from heavy monsoon rains is often amplified by drainage systems that are incapable of handling masses of water.
The findings of this year's report are based on structured interviews with executives representing 27 regional and international (re)insurance companies, intermediaries, policymakers and trade associations. The interviews were conducted by Faber Consulting, a Zurich-based research, communication and business development consultancy, from August to September 2021.
The report says that demand for natural catastrophe protection is high. Customers are aware that they live in a nat CAT-exposed region. The main buyers are commercial entities, while the private sector remains largely underinsured. Across ASEAN, natural catastrophe protection for the private sector is limited due to the low insurance penetration.
The cost of insurance and the willingness or ability to pay are the most decisive factors for the purchase of natural catastrophe coverage in the ASEAN insurance markets. Clients are highly cost conscious with a short-lived memory for past losses. Weak enforcement of building codes, flood zones or settlement restrictions also affects insurance demand and risk appetite in the ASEAN markets. On the supply side key challenges are the limited technical capacity in markets with a high natural catastrophe exposure. In addition, the ability to adequately model natural catastrophe risks is still perceived as insufficient.
According to the executives interviewed, ASEAN governments are expected to take a more active role in protecting the lower income groups through premium subsidies and public private partnerships.
Recommendations range from the introduction of mandatory insurance schemes to improving awareness and education about insurance products or to creating insurance pools and sharing the risks across as many shoulders as possible.
The insurability of flooding in the AESAN markets also benefits from sufficient availability of primary insurance and reinsurance capacity at stable rates.