According to the ASEAN Insurance Pulse 2021, floods have been responsible for more than 45 per cent of accumulated total natural disaster losses of US$ 137 billion since 1990 in the region — well ahead of other hazards such as storms or earthquakes.
Notwithstanding the region’s considerable natural catastrophe exposure, the executives interviewed for this year’s ASEAN Insurance Pulse regard all types of flood risk as insurable in principle.
Low insurance penetration
However, insurance penetration remains low and in particular the lower income sections of society which are most exposed to the risk rely mostly on government support.
The ASEAN Insurance Pulse is an annual research publication by Malaysian Re, now in its fifth year.
This year's edition focuses on natural catastrophes and flooding as the key peril that on average causes the highest devastation in the region.
Climate change and urbanisation are expected to further aggravate frequency and severity of floods and inundations.
The impact from heavy monsoon rains is often amplified by imadequate drainage systems unable to handle masses of water.
The ASEAN Insurance Pulse explores the main trends influencing the financial risk management of natural catastrophes and flooding.
In this context, the study also highlights the increasing importance of ESG principles in underwriting, asset management and insurers' operations.
Demand for natural catastrophe protection is high. Customers are aware that they live in a natural catastrophe exposed region.
The main buyers are commercial entities, while the private sector remains largely underinsured. Across ASEAN, natural catastrophe protection for the private sector is limited due to the low insurance penetration.
The cost of insurance
The cost of insurance and the willingness or ability to pay are the most decisive factors for the purchase of natural catastrophe coverage in the ASEAN insurance markets.
Clients are highly cost conscious with a short-lived memory for past losses. Weak enforcement of building codes, flood zones or settlement restrictions also affects insurance demand and risk appetite in the ASEAN markets.
‘We are seeing an increasing demand for natural catastrophe cover in the ASEAN region," says Zainudin Ishak, President and Chief Executive Officer of Malaysian Re.
‘Climate change is impacting peoples’ risk perception.
‘They realise that weather patterns are different than in the past, sea levels are rising, coastal flooding increases or that the monsoon season seems to have shifted.
‘While insurable assets have increased as well, clients seek protection from natural hazards.
‘However, the lower income sections of society remain largely uninsured."
Limited technical capacity
On the supply side key challenges are the limited technical capacity in markets with a high natural catastrophe exposure.
In addition, the ability to adequately model natural catastrophe risks is still perceived as insufficient.
According to the executives interviewed for this study ASEAN governments are expected to take a more active role in protecting the lower income groups through premium subsidies and public private partnerships.
Recommendations range from the introduction of mandatory insurance schemes to improving awareness and education about insurance products or to creating insurance pools and sharing the risks across as many shoulders as possible.
Flooding in the ASEAN region is considered insurable in principle.
Due to improved risk management and modelling capabilities, insurers increasingly focus their attention on flood prone areas and try to manage their exposure through cautious risk selection. The insurability of flooding in the AESAN markets also benefits from sufficient availability of primary insurance and reinsurance capacity atstable rates.