ILS an instrumental part of solving Asia’s protection gap: Schultz, Aon Securities

The trend of insured against uninsured losses across the Asia Pacific region is not sustainable, and the insurance-linked securities (ILS) market will need to play an integral role in addressing the issue, according to Paul Schultz, Chief Executive Officer (CEO) of Aon Securities.

The Asia Pacific region is extremely vulnerable to a wide range of natural catastrophe events and, year-after-year, governments are faced with a significant recovery bill as economies on both a micro at macro level are impacted.

Unfortunately, the region also has some of the lowest levels of insurance penetration in the world, meaning that the disparity between economic and insured losses post-event, known as the protection gap, is often substantial.

Delivering a keynote speech at the virtually held Artemis ILS Asia 2020 conference last week (which you can watch on-demand here), Schultz discussed the history, and expanding role of ILS in Asia with a view to the region’s outsized protection gap.

“The protection gap exists globally and there’s a stark reality between what is insured and what is uninsured. And, in Asia Pacific that protection gap is even slightly worse that what it is globally,” said Schultz.

Adding, “So, in my opinion and our firm’s opinion, this just isn’t a sustainable outcome. As we overlay the current economic situation, the realities of COVID-19, the impacts economically to businesses, to insurers and to reinsurers, to countries and to governments, the economic toll is going to be massive.

“And, then, to have this type of protection gap where the natural catastrophe risk take-up rate is not that impressive, when you just look over the last twenty years, when you look at the trend of insured against uninsured, that just isn’t sustainable.”

Add to this the year-over-year deterioration witnessed in 2018 and 2019, and Schultz feels that there really is an opportunity for the ILS market, and capital markets more broadly to increase its presence in the region and help solve the protection gap challenge.

“ILS, I think, is clearly the type of product that can come in and have a significant impact,” said Schultz. “But, I would just say, ILS and broadly the capital markets are going to have to be an instrumental part of the way we solve this.

“And, I think there’s never been a more important time to just really step back and say, what are we doing to promote sustainability, what are we doing in the region to address this issue, because clearly, the stress in the system exists even more today than it has looking backwards.”

Although still in its infancy when compared with other domiciles, the number of ILS transactions completed in the region continues to rise and as noted by Schultz, over the last ten years the increase has been more than twofold.

“I think that really sets the stage for what we would expect in the future, and as I said, given where we sit, that 2x multiple is exciting and we are certainly happy to be a part of it,” said Schultz.

You can watch the full keynote by Paul Schultz from our virtual conference on-demand here.

Register to watch every session from the conference here.

As well as the on-demand playback, we will be archiving every session from our online and virtual ILS Asia 2020 conference over on our YouTube Channel in the coming weeks.

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