Parametric disaster insurance facility for ASEAN to get Japanese funding

by Artemis on April 27, 2018

Japan is set to back and help fund the launch of the Southeast Asia Disaster Risk Insurance Facility, a parametric disaster insurance pool that will be established to serve ASEAN nations including Laos, Myanmar and Cambodia to begin with.

The Southeast Asia Disaster Risk Insurance Facility (SEADRIF) is set for an official launch in May, at an Asian Development Bank board meeting, according to a report in the Nikkei.

At a recent meeting of Finance Ministers and Central Bank Governors of the ASEAN member nations, held in Singapore (don’t forget to register for Artemis’ Singapore conference), noted the importance of strengthening the regions resilience against natural disasters.

By doing so, with insurance and reinsurance protection one element, the ASEAN nations want to protect and sustain their growth, while also protecting their people’s well-being, lives and livelihoods.

The forthcoming Southeast Asia Disaster Risk Insurance Facility (SEADRIF) will protect participating countries that are slated to include Laos, Myanmar and Cambodia to begin with, but the parametric disaster insurance facility could extend coverage to the entire ASEAN membership in the future.

Japan is set to provide initial funding to get the SEADRIF up and running, likely paying some contribution towards premiums for members in the initial year as well.

The facility will provide members with insurance against disasters such as flooding, typhoons and earthquakes, with policies featuring parametric triggers based on actual weather or catastrophe event measurements, meaning rapid payouts for disaster relief can be made by the facility.

According to the Nikkei, the parametric disaster facility will leverage reinsurance from Japanese and global providers.

These facilities can offer efficiencies as they scale, with the pooling of nations risks into a single pot which is then transferred to the global reinsurance markets a way to ensure the coverage can be made as efficient as possible. In time, as the facility grows, we could even see the risks transferred to the capital markets, which could be even more efficient given the appetite ILS investors would have for a parametric catastrophe bond covering a facility like SEADRIF.

The role of risk pools and parametric disaster insurance facilities could be significant in Asia-Pacific, especially as just 8% of losses are currently covered by insurance and the economic toll from disaster is anticipated to reach $160 billion per year, as we discussed in an article earlier this week here.

That’s an enormous risk pool that needs to be covered and these facilities are a good way to begin to provide the sovereign level disaster insurance component, that can eventually become the buffering layer to protect local insurance market expansion and development, with the help of reinsurance and capital market players.

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