Two transformative areas the insurance industry should focus on

By looking into these areas, the insurers can help support economic recovery for Asia.

There are two transformative areas where the insurance industry should seize opportunities to help support the Asian economy’s road to recovery.

These areas, according to Minister for Finance Lawrence Wong, are climate change and digitalisation.

In his speech during the Singapore International Reinsurance Conference 2021, Wong underscored the need for insurers to “work systematically with policymakers as they respond to climate change.”

Wong said up to 27% of Asia’s gross domestic product could potentially be threatened by climate risk before 2050.

In the first half of 2021 alone, Wong said Asia accounted for 554 of the 163 natural disasters globally, resulting in US$24b in economic losses. 

Wong suggested that insurers support climate risk mitigation and adaptation measures through deploying alternative risk financing solutions like insurance-linked securities or ILS, such as catastrophe bonds.

The finance minister said Singapore has issued 18ILS over the past three years and has also supported the first Asian sovereign catastrophe bond covering earthquake and typhoon risks in the Philippines.

Insurers can also provide financing solutions to help “de-risk, and support the deployment of more climate-friendly technology and infrastructure solutions in the region,” according to Wong.

Meanwhile, Wong said the second area, which is digitalisation, has enabled insurers to support “not only risk transfer but also risk prevention.”

Through advanced technology and data analytics, Wong said insurers are able to develop sharper risk insights to size and price risks more accurately. 

“For example, in the health insurance space, technology is enabling insurance to go beyond paying for medical claims post affliction to encouraging healthy lifestyles and habits,” Wong said.

Devices such as artificial intelligence and telematics are also being used in the motor insurance space to assess and price insurance.

Such efforts from insurers are well supported in Singapore’s Fintech eco-system, according to Wong, citing that Singapore has one of the largest concentrations of InsurTechs in Asia, at 80 firms.

Wong added that  InsurTech investments in Singapore nearly quadrupled to US$95m in 2020.

As increased technology comes with greater cyber risk, Wong said insurers should likewise work with the cyber security industry and policymakers to create “more reasonably priced solutions with the proper coverage for firms.”

In order to develop these solutions both for climate change and digitalisation, Wong said collaboration will be needed.

One platform for such collaboration is the Global-Asia Insurance Partnership or GAIP.

GAIP is a which is a tripartite partnership that aims to “produce actionable research insights, develop policy recommendations, and co-create innovative solutions for key structural and emerging risks that Asia faces.”

Wong said he is confident that collaboration between the insurance sector and the public and private sectors will help narrow the protection gap in Asia. 

“Our challenges are significant but they are not insurmountable,” Wong said.