The Head of Property & Casualty Reinsurance SID at Swiss Re, Victor Kuk, has highlighted the escalating crisis of natural catastrophes in Asia, with over 30% of the global nat cat events in 2022 occurring in the continent, causing staggering economic losses.
The industry expert was quoted by Reinsurance News during an interview as expressing concerns that this alarming trend is driven by sundry factors, including rapid economic development, urbanisation, and expanding populations.
Kuk, noted that particularly in Asia, nat cat exposures were growing larger as increasing urbanisation, particularly around coastal areas, driving economic growth–asset values are accumulating rapidly and that these exposures, which are increasingly attributed to secondary perils, are growing faster than insurance premiums.
He underscored the increasing significance of understanding secondary perils, like floods, which have historically resulted in substantial economic losses in Asia and lamented that Asia had historically suffered the highest flood-related economic losses. In 2011–2020, economic losses from flood events averaged almost USD 30bn annually (including the Thailand flood of 2011).
Citing the unique case of Japan, a nation perennially exposed to nat cat events such as typhoons and earthquakes, to further harp on the increasing spate of nat cat risks in Asia, the Swiss Re expert noted that despite its long-standing tradition of climate adaptation measures and leveraging historical data, recent events like typhoons Jebi and Hagibis served as “wake-up calls” due to the prominence of secondary perils.
According to him, Japan’s protection gap, particularly in seismic risk, stems from significant underinsurance despite robust risk mitigation measures, adding that “…based on the Swiss Re Institute’s Nat Cat resilience index, Japan’s Nat Cat resilience score rose from 22% (2022) to 24% in 2023, albeit it fell in rank (2022:17th, 2023:23th).”
Kuk, who stressed that Japan’s experiences offered valuable insights for emerging Asian markets, emphasized the need for quality data and forward-looking models to adapt to evolving climate risks.
On options open to address the challenges faced by both advanced and emerging Asian markets, Kuk highlighted the necessity of rigorous risk modeling and disciplined underwriting.
He clarified: “To enable re/insurers in narrowing the protection gap, it is crucial that risk premiums adequately reflect the market situation alongside continuous assessment of losses and potential downside. Re/insurers will then be able to develop sustainable offerings in a timely manner.”
Kuk pointed out that while there have been improvements in catastrophe risk modeling in Asia Pacific, progress still lagged in the face of rapid changes.
While raising concerns about the inconsistency of available catastrophe models for secondary perils, which can lead to underestimation of losses, Kuk urged the industry to commit to sourcing better data, sharing information transparently, and proactively incorporating new insights into risk assessment.
Looking ahead to 2024, Kuk acknowledged the evolving risk landscape, including recurring high nat cat losses, geopolitical tensions, inflationary pressures, and other challenges.
He expatiated: “As risk awareness and exposures grow, we also expect an increase in the demand for protection, which translates to growth opportunity for the re/insurance industry. Asia is growing faster and becoming wealthier as urbanisation continues to drive economic growth–this translates to a larger nat cat exposure.
“Hence, our outlook for APAC’s re/insurance industry is generally positive amid growing demand. Notwithstanding, we need to be mindful of the need for risk-adequate rates; adequate returns commensurate with risks are essential to maintain sufficient capacity
“This year, we have seen a return towards a more sustainable equilibrium in risk sharing across the insurance value chain, which is a necessary trend we expect to continue”, Kuk added.
