RIMS-WTW: Time to face our fragility

Our interconnected and interdependent global system is incredibly fragile and vulnerable.

This is according to Gillian Tan, assistant managing director (Development & International), Monetary Authority of Singapore in her keynote speech on the first day of the Risk and Insurance Management Society (RIMS) - Willis Towers Watson (WTW) Asia Pacific Risk Virtual Conference.

She highlighted the war in Ukraine, impact of the COVID-19 pandemic and climate change as examples of recent shocks business and society has been forced to navigate.

The risk and insurance community has an essential role in building greater resilience to a more volatile risk landscape, said Tan.

”The theme of the conference, Risk Resilience Reimagined, is a timely reminder of the importance of building our capabilities to navigate complex risks,” she said. 

“We are gathered here in unsettling times. The war in Ukraine has cost lives, led to a refugee crisis, precipitated an unprecedented global response and brought about profound new uncertainties in an already uncertain world. 

“All this has come at a time when the world economy is still fragile, fresh from recent battles with the COVID-19 pandemic, which exacted a heavy price. And scientists are certain that this won’t be our last pandemic.

“And then there is the urgent need for climate action. Here, the science is clear. Our actions and inactions have consequences. 

“Amidst this sobering backdrop, what has been taken for granted all along is now clear: our interconnected and interdependent global system is incredibly fragile and vulnerable.”

Insurance solutions needed

Demand for resilience capabilities offers opportunities for the insurance industry and finance sector to innovate and come up with solutions.

Tan used the examples of pandemic and climate risks as two areas where more needs to be done to mitigate exposures and devise effective risk transfer solutions.

Public private partnerships are one way of dealing with systemic risk, she said.

”As a flood of claims triggered on a global basis by fast spreading pandemic variants pose significant challenges to making pandemic risk insurable, a more resilient approach for economies and businesses is to support pandemic risk sharing and risk pooling.

”Pandemic risk financing for critical or more vulnerable sectors through a public-private approach, combining finances from the government, key firms in these industries, and insurers could provide much-needed rapid relief. 

”Singapore is taking active steps towards building stronger capabilities in pandemic risk financing,” Tan continued. “A key platform is the Global-Asia Insurance Partnership or GAIP, which is a tripartite partnership between the global insurance industry, regulators and academia.

“It aims to produce actionable research insights, develop policy recommendations and co-create innovative solutions for key risks that Asia faces.”

Turning to climate risks, Tan warned that if no action on climate change was taken, Asia’s economy would shrink by 26% by 2050. The protection gap is among the key challenges that must be dealt with for a region that is so highly exposed to natural catastrophes and weather extremes.

”In 2021 alone, the economic cost of catastrophes in the Asia Pacific region was US$50 billion, accounting for 18% of the global total. However, Asia is significantly underinsured at only 17% of the total economic cost compared to the global average of 57%.

”Asia’s insurance markets are growing, but the pace of growth will not be able to match the region’s growing protection needs from natural catastrophes.

”A distinct lack of high quality and standardised data to accurately quantify risk exposure for climate risks or to build reliable models also remains a key challenge. 

“To support natural catastrophe risk financing in the region, Singapore has been stepping up efforts to support the development of innovative risk pooling solutions as well as better risk modelling and analytics capabilities,” she continued.  

“We see insurance-linked securities or ILS, which support additional fund raising from the capital markets, as a key solution. 

”Ultimately, supporting the growth of better climate risk financing solutions will require strong risk analytics, data and risk modelling efforts. We need to share resources, exchange notes and work together.”