The Association of Southeast Asian Nations (ASEAN) aims to implement the ASEAN Disaster Risk Financing and Insurance Programme, as access to risk capital and immediate liquidity post-disaster is recognised as increasingly important to the region’s growth.
In a statement made at the 3rd UN World Conference on Disaster Risk Reduction meeting in Sendai, Japan at the weekend, the Deputy Prime Minister of Malaysia Tan Sri Muhyiddin Yassin explained the importance of meeting the threat posed by disaster risks head-on.
The ASEAN region is ready to respond to the challenges posed by natural disasters and extreme weather events, the statement explained. With around 625 million people in the ASEAN region and much of the world’s interconnected supply chains passing through its manufacturing and trade hubs, the region is a key target for building resilience to disasters.
“ASEAN, however, is also one of the most at-risk regions in the world. Around 100 million people have been adversely affected by catastrophic events since year 2000. And every year during this period, ASEAN has incurred losses of a staggering 4.4 billion US dollars on average due to disasters. The increasing severity of disasters, as further exacerbated by the impacts of climate change, intensify the vulnerabilities of the peoples of ASEAN, especially the poor and marginalised,” the statement explains.
The region has already begun work to improve resilience and the ability to respond to disasters, with projects led by organisations such as the World Bank and Asian Development Bank seeking to help countries become more resilient and better prepared for the largest catastrophe events.
Risk financing and transfer is an important component of this work and the ASEAN region has been part of an initiative led by the World Bank and the United Nations International Strategy for Disaster Reduction (UNISDR) who have been assisting ASEAN Member States in the area of disaster risk financing and insurance.
It’s seen as part of a broader program to strengthen disaster risk reduction capacity. ASEAN nations have identified in the past a desire to put this programme to work and now the statement of these nations looks set to help drive the initiative forwards.
“Financing disaster losses for recovery and providing immediate liquidity in the aftermath of a disaster is also a priority of ASEAN. We are now going to implement the ASEAN Disaster Risk Financing and Insurance Programme as part of the risk financing and insurance road map of the region to leverage national and regional resources as well as the international insurance market,” the statement of ASEAN nations continued.
Risk pooling is likely to feature, to enable the ASEAN nations to more efficiently access the private reinsurance markets to provide capacity to back any regional disaster insurance fund or pool. Parametric triggers are also likely to be a feature of any ASEAN disaster insurance program as the goal will be to facilitate rapid payouts after impactful events.
The programme is likely to involve work at the lower-levels of index-insurance as well, to ensure greater uptake of insurance by citizens, with the risk pool and access to private market reinsurance capital enabling the costs to be shared and reduced.
There is a strong desire to accelerate these disaster risk financing programmes in Asia and developing regions of the world, however politically the work of the World Bank, UNISDR and other organisations is not easy.
Sovereign disaster risk transfer and financing is becoming an increasingly hot topic, helped by the work of these organisations and the concentration of efforts around the Sendai meetings and the Hyogo protocol.
If the end result is a risk pooling facility that enables ASEAN nations to access cheaper disaster risk capital, be that from the traditional reinsurance or capital markets, it will benefit the region and begin to build trust in and demand for their sovereign catastrophe risk transfer needs. The reinsurance and capital markets certainly stand ready to support such initiatives capacity needs.