While the growth of industrial clusters has been economically advantageous for many countries in Asia, it has also led to the creation of major concentrations of risk
This is the “opposite of the principle of diversification that underlies insurance”, according to director of business solutions at catastrophe risk management firm RMS, Neena Saith (pictured).
Countries in the Asia-Pacific region have been experiencing rapid growth of industrial exposure due to the industrial clusters policies that governments in the region have adopted, Saith told StrategicRISK.
“Since the mid-1990s governments across Asia have been encouraging the creation of these industrial parks,” she said.
“That’s been prevalent as a means to increasing business competence and innovation and trying to develop strong economies in each of the countries.”
Industrial clusters are concentrations of firms benefiting from advantages of co-location in terms of information sharing, labour market and specialisation processes.
Saith spoke to SR following the release of RMS economic exposure databases and industrial clusters catalogues for the Philippines, South Korea, Taiwan, Thailand and Vietnam.
The new exposure datasets, which can be used with RMS and non-RMS exposure and risk management software, will be joined later this year by datasets for Hong Kong, Indonesia, Malaysia and Singapore.
The provision of the location, configuration and economic values of exposure concentrations would enable insurers and reinsurers develop a more comprehensive view of risk in Asia, and was the first step to providing more modelling solutions in these countries, Saith added.
“We’ve also got large earthquake and climate hazard scientists focused on developing new and improved models for the Asia region that will result in expanded peril model coverage,” she said.
“And flood is one of our big priorities at the moment; it’s a peril with such high frequency; and with the rapid growth of industrial exposure on flood plains and coastal locations across Asia, it’s becoming more and more important.”
Concentrations of risk
Saith said that the economic exposure datasets revealed that while capital cities generally housed the highest commercial concentrations of risk, industrial concentrations were often outside the capital cities. This was because the industrial zones had been moved away from residential and commercial areas.
Ulsan in South Korea and Linhai Industrial Park in Kaohsiung City, Taiwan, are two particularly important industrial exposure hotspots.
Bangkok is the exception to the rule, as it is the capital with the most industrial exposure, totalling more than $US41bn.
Saith said that the scarcity of exposure data for Asia has often forced companies to rely on aggregate data, which can hide the true magnitude of their risk.
“By using the RMS datasets, companies can now get a clear-cut view of exposure risk to sustain profitable business in these five countries,” she said.
“They can locate concentrations of exposure and characterise the risk profiles of exposure hotspots to develop more robust risk management strategies.”
Addressing poor data
Paul Burgess, senior director of client development at the catastrophe risk management firm’s new Singapore hub, said that the need for solutions to address poor data in the region was as pressing, or more so, than the need to build new or updated models.
“The industrial clusters catalogue, especially in tandem with accumulation management tools and deterministic modelling (such as the use of realistic loss scenarios), will be great step forward for underwriting and managing risk at the portfolio level,” he said.
“Likewise, with these economic exposure datasets, clients will be able to understand aggregate data better, as well as identify and prioritize growth opportunities.”
As SR reported recently, Burgess moved to Singapore in May to help set up the firm’s newest office, adding to its APAC presence in Beijing, Delhi and Tokyo.
He said at the time: “The exposure databases really help you know where your risks are located, especially when you start to combine that with the flood scenario events.
“It’s all part of our long-term strategy around Asia Pacific.”