Call for 'coordinated and holistic approach' to nat cats in APAC

Last month, the UN issued a stark warning to businesses operating in the Asia Pacific region that natural disasters could cost the region $160 billion per year by 2030. 

Speaking at an event on financing disaster risk reduction, the United Nations development arm in the region warned greater innovation in disaster risk financing is desperately needed. 

The need is all the more pressing given that only 8% of region’s losses are insured, said the UN Economic and Social Commission for Asia and the Pacific (ESCAP). 

“The time for establishing solutions to these complex emerging challenges is now,” said Shamshad Akhtar, the Executive Secretary of ESCAP. 

The low insurance coverage has persisted in the region even though it has suffered nearly $1.3 trillion in losses over the last 50 years. 

In the wake of these claims, StrategicRISK spoke to AIG’s AIG global innovation lead for client services, Sheri Wilbanks about what risk managers in the region can do to try to stay ahead of this risk.  

What APAC risk managers should be doing to help their business prepare for and mitigate this risk? 

Given the very low insurance penetration, as quoted in the UN News article roughly 8% of losses are insured, the economic strain on governments will eventually result in their inability to cover these catastrophic losses.  The businesses that suffer a loss and are un- or under-insured may cease operations altogether, and at the very least will have a significant delay in recovery.  APAC risk managers with complex supply chains in this regions should examine how their suppliers, and the next tier of suppliers, may be affected from an event and resulting impact. Where available, risk managers should also leverage advanced supply chain models to run scenario analysis.     

How can risk managers ensure that their C-suites take the threat seriously when so many different risks are fighting for their attention?  

The research data and facts on natural disaster activity in the region provides a compelling picture to get the attention of C-suite. Additionally, where newer, updated catastrophe models accurately capture the exposure and provide additional details on losses, risk managers should avail themselves of these model tools for both quantification and resilience discussions with C-suite.   

What can risk managers be doing now to ensure their business is in a good position for this horizon risk? 

While alternative risk transfer and pooling innovations specifically for natural catastrophe exposure are not available in every country in the region, there are enough that risk managers should be familiar with parametric insurance instruments, available risk pools, etc. And where a business operation is in a country which is not yet leveraging a risk pool at the regional or national level, risk managers should be working together with local governments to explore and discuss options and potential solutions. Because of the potential for widespread impact from natural disasters in APAC, a coordinated and holistic approach is more sensible and feasible than thinking the impact can be handled in isolation.