Insurance industry can help Asia cushion impacts of climate change, digital transformation: Lawrence Wong

SINGAPORE – The insurance industry can help economies in the region weather the impacts of climate change and digital transformation, said Finance Minister Lawrence Wong on Monday (Nov 15).

The Covid-19 pandemic has disrupted global economic activity and exposed the fragility of health and social infrastructure, even as the world continues to deal with challenges such as climate change and cyber risk, he added at the virtual Singapore International Reinsurance Conference.

But Asia’s fundamentals remain strong, with the region leading globally in economic growth, the rise of the middle class, wealth creation and urbanisation, said Mr Wong, who is also deputy chairman of the Monetary Authority of Singapore.

“As Asia grows, more lives, wealth and assets will need protection,” he added, noting that the region’s insurance market is growing nearly twice as fast as the global one, at an estimated 8 per cent per annum until 2030.

He said the future of climate change will be won or lost in Asia, which accounts for over half of global greenhouse gas emissions.

Asia also accounted for 55 of the 163 natural disasters worldwide in the first half of this year, resulting in US$24 billion (S$32.4 billion) in economic losses. Emerging economies make up half of the top 10 countries in Asia most impacted by climate risk.

“Climate change will exacerbate the frequency and intensity of natural catastrophes, and widen the natural catastrophe protection gap,” said Mr Wong.

The industry is an important partner in deploying alternative risk financing solutions, including government risk pools and insurance-linked securities (ILS), which can ensure protection that better matches the scale of coverage needed, he added.

He cited the South-east Asia Disaster Risk Insurance Facility, which is based in Singapore, and partners Japan’s Ministry of Finance and the World Bank. It provides climate and disaster-resilience solutions for Asean member states, and its first solution – a flood insurance pool for Laos – was launched in February.

ILS such as catastrophe bonds enable the reinsurance industry to transfer and raise additional financing from the capital markets for peak disaster risks.

“Singapore will do our part to support the development of insurance-linked securities in Asia Pacific, through a sound regulatory and legal regime, and a growing base and expertise of ILS service providers,” said Mr Wong.

He noted that 18 ILS have been issued here over the past three years, covering a range of natural catastrophes, including typhoons, floods and storms, across Asia and Australia.

Insurers can also provide financing solutions to help lower the risk and deploy more climate-friendly technology and infrastructure solutions in the region, he added.

“Importantly, insurers can also use your influence and voice as an investor, in service of the climate transition. The insurance industry has total assets under management of about US$35 trillion. You are in a good position to channel greater capital flows towards climate-resilient and lower-carbon assets,” said Mr Wong.

He added that technology and big data have helped insurers in the area of risk prevention.

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Many of them, including life insurers in Singapore, have started to track users’ health and habits through fitness devices and applications, for example. The data is then used to price premium discounts for healthier habits by the consumer.

But many insurers are still weighed down by legacy technology systems, and they can get help from insurance technology firms for digital transformation, said Mr Wong. Legacy tech systems are ones that are outdated.

Insurtech investments in Singapore nearly quadrupled to US$95 million last year.

There are also opportunities in the growing cyber-insurance market as the digital economy’s growth has resulted in increased cyber risk, he said, noting that Asia has accounted for over a quarter of global cyber attacks this year.

“Such cyber attacks not only damage a firm’s technology assets, but also cause financial and reputational losses, constraining future business growth.”

Mr Wong added that Singapore is doing its part to support efforts to develop the nascent cyber-insurance market.

For example, several cyber insurers are customising solutions that combine cyber-risk capacity building, risk assessment and financing for small and medium-sized enterprises – an underserved segment of the cyber-insurance market.

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