ASEAN countries explore regional risk insurance pool

by Artemis on February 20, 2017

At a recent meeting in the Philippines, the ASEAN group of countries agreed further cooperation on disaster risk and insurance in the region, with a regional risk pool one of the stated goals to help access to reinsurance markets be made more efficient.

The meeting of the ASEAN Cross-Sectoral Coordination Committee on Disaster Risk Financing and Insurance discussed issues surrounding disaster risk data and the establishment of a regional damage-and-loss database, to help countries gain a view of their disaster risk and to enable risks to be priced more accurately.

The acquisition and collection of data is core to enabling disaster insurance projects to be rolled out in such regions, particularly where risk pooling is a possibility. It is only by having the data available in a structured and useful form that pricing efficiencies can be truly realised.

The ASEAN group of countries are exploring the potential to launch a regional risk insurance pool, which would allow them to bring their risks together in order to access the global reinsurance market more efficiently.

The next phase of the ASEAN DRFI Roadmap and Programme calls for the exploration and eventual establishment of a risk pool, bringing together risks such as earthquake, typhoon and other major natural perils, in order to offer more affordable parametric sovereign insurance cover in the region, backed by global reinsurance markets.

By pooling the risk the ASEAN region may find it can benefit from efficiencies such as those realised in the Caribbean with the CCRIF, which has enabled numerous countries in the region to access parametric insurance for disaster risks that without the risk pooling effects would have been largely unaffordable.

Reinsurance and capital markets players can support such efforts, with traditional and collateralised reinsurance products playing a role in risk pools worldwide. The CCRIF itself has a catastrophe bond in place, providing some of its reinsurance cover, while the African Risk Capacity (ARC), which also pools risk across nations in Africa, has ILS fund participation in its reinsurance program.

The ASEAN region could emulate these efforts, growing a risk pool which would be attractive to both traditional and alternative reinsurance capital, resulting in demand to participate which could help to lower pricing and ultimately make the disaster insurance cover offered within the facility more affordable for countries in the region.

Access to efficient reinsurance capacity, in whatever form, is key for regional risk pools and given the state of pricing and appetite within the global reinsurance market right now, an ASEAN risk pool would likely be warmly received by reinsurers and ILS investors alike.

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