Catastrophe modelling firm JBA Risk Management, has highlighted the potential for significant increases in flood exposures across the Asia-Pacific by the year 2020, further cementing the need for increased reinsurance and insurance-linked securities (ILS) participation in the region.
JBA Risk Management, a U.K. domiciled catastrophe modelling company’s latest study into Asia-Pacific flood exposures, claims that some cities in the region could see a 30% rise in populations at risk of extreme flooding by the year 2020.
A 30% increase in any region is staggering, but considering that the Asia-Pacific’s 26 countries are home to more than half of the world’s entire population, the need for improved catastrophe mitigation and resilience efforts becomes ever more apparent, as does the need for risk capital.
“This research shows that large conurbations in Asia continue to be at substantial risk of flood damage. It also shows that in the next five years at least, we could reasonably expect this risk to increase based on projected population levels,” said author of the study and JBA Technical Director, Dr. Iain Willis.
Adding; “A lot of this increase is driven purely by socio-economic changes, such as rural-urban migration within APAC countries.”
The final point raised here has been documented and discussed by numerous industry experts and analysts in recent times, Artemis included, as rising asset values and an increase in the volume of middle class families across the Asia-Pacific migrate to coastal regions and built-up cities.
“I think these findings help reaffirm the importance of flood modelling in the region. The continued rise of non-life and life insurance in the next few years across APAC is backed up by a burgeoning middle class that see insurance as an increasingly important part of their risk management, whether for their families or businesses,” said Willis.
While migration is natural in any emerging, developing economy, the presence of natural catastrophes in the Asia-Pacific, which is highly susceptible to a range of perils, coupled with low insurance and reinsurance penetration levels, means the consequences can be significant and even irreparable.
Many Asian coastlines are highly vulnerable to extreme flooding from storm surge and adverse weather events, while cities in the region also lie next to major river systems, which are again highly susceptible to flooding events.
So clearly, insurance, reinsurance and most likely the capital of the ILS markets, as well as structures such as catastrophe bonds, are required to innovate, and develop solutions to address the growing flood exposures across the Asia-Pacific.
JBA notes that from 2002 to 2014 total gross written premium increases in the Asia Pacific have averaged 6.6%, annually. Which “further highlight the growing insured flood risk exposure in the region and continued challenges this poses for risk management.”
JBA chose four major cities in the region for its study; Jakarta, Bangkok, Manila, and Singapore, and “JBA’s high resolution global flood maps (GFM®) were compared to gridded population density projections to estimate the exposed population in both 2010 and 2020,” with alarming results.
For Bangkok and Jakarta the potential increased exposure is the most significant when compared to the JBA river flood maps for a 1/200 year return period, at 36% and 33% respectively, when compared to 2010. Translating to a population exposure of 5.3 million and 5.2 million, respectively, says JBA.
For Manila, the increase from 2010 is roughly 27%, and for Singapore it equates to around 17%, according to the study.
The potential exposure is certainly significant, and will take a concerted effort from insurers, reinsurers and insurance-linked securities (ILS) market participants to adequately address and protect against.
Furthermore, studies like this from the JBA serve to highlight just how serious and prevalent the growing flood risk across the Asia pacific is, something invaluable to the risk transfer markets that aim to develop and offer solutions.