During the last decade more than 40% of global disasters have occurred in the Asia-Pacific region, affecting over 1.4 billion individuals and causing economic damages of beyond half a trillion dollars, truly underling the need to narrow the insurance protection gap.
The Asia-Pacific region is home to some of the world’s poorest and most vulnerable communities and individuals to a range of natural disasters, including flooding, drought, earthquakes, and severe storms.
The levels of exposure, and the massive economic losses that result, underline the need for disaster risk finance and mitigation practices to improve resilience efforts, assist with increasing insurance and reinsurance penetration rates and ensuring recovery after catastrophes is better financed and easier.
A recent study by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), claims that 1,625 disasters have impacted the region over the last ten years, over 40% of the global total, claiming the lives of half a million people.
Furthermore, owing to relatively low incomes, a lack of education, preparedness and a need for developed, adequate disaster risk financing and mitigation markets and solutions, insurance penetration levels across the Asia-Pacific are some of the lowest in the world.
The UN report, ‘Asia-Pacific Disaster Report – Disasters without borders: regional resilience for sustainable development,’ states that during the last decade alone the region has incurred economic losses of more than half a trillion dollars, which it states is nearly half the global total of economic losses as a result of natural disasters during the period.
“It is a grave concern that disasters are becoming more frequent, much larger and more intense. As the report highlights, the majority of the disasters in our region are cross-border in nature. This is clearly demonstrated by the earthquake that struck the Alpine-Himalayan belt yesterday, affecting Afghanistan, Pakistan parts of India and Tajikistan,” said United Nations Under-Secretary-General and Executive Secretary of ESCAP, Dr. Shamshad Akhtar.
Economic losses of more than half a trillion dollars highlights the need to increase insurance and reinsurance penetration across the Asia-Pacific to alleviate some of the financial burden from governments post-event, and to ensure those affected at least see some of what they lost compensated for via some form of insurance protection.
What’s more, the admission from the UN and numerous other disaster risk analysts, experts and discussions in recent times of a rise in the frequency and severity of natural catastrophes further supports the need for improved disaster resilience and preparedness.
Also, notes the report, “the region’s existing risks are exacerbated and new risks are created, by rapid economic growth, rising population, burgeoning cities, and the consequent impact these interrelated processes have on environmental buffers.”
Meaning that when disaster strikes, which it will, the increased value and concentration of assets, which will likely be largely uninsured, point to greater economic losses.
The report provides comprehensive analysis and details on a range of perils and geographies that need substantial disaster mitigation and resilience structures in place to avoid the rising economic loss trend.
“A fundamental rethink is needed as many governments still follow a short-sighted approach to disasters—with the focus on response, and paying less attention to adaptation, mitigation and preparedness,” advised Dr. Akhtar.
To alleviate the enormous financial burden placed on governments in the Asia-Pacific region, the utilisation of disaster risk financing pools, which use the expertise, knowledge and experience of the reinsurance, insurance and insurance-linked securities (ILS) markets, are highly capable and willing.
Innovation is required, along with public-private partnerships to ensure those affected are aware of solutions and schemes to protect them, and to increase the understanding of just how potentially damaging a natural disaster event can be.
The gap between insured and economic losses post-event is an issue in developed markets and countries as well as the less developed regions. But with a rising population, burgeoning asset values and migration to hazard prone areas, all happening at the same time as the severity and frequency of catastrophe events increases, the urgent need for action to be taken across the Asia-Pacific is brought to light.
And, with the potential costs so high and far-reaching, it’s essential the insurance, reinsurance, ILS and wider risk transfer world work together with public organisations to develop affordable, adequate and much-needed risk transfer solutions to help build economic and disaster resilience, pre and post-event.
Read our series of articles focused on the insurance protection gap – underinsurance in emerging and developing economies and the gap between economic and insurance losses – an opportunity that is on every reinsurance CEO’s lips and which presents the largest opportunity to put excess risk transfer capital to use, requiring both traditional and capital markets support.