The changing face of catastrophe insurance

With the impact of climate change being keenly felt across Asia, risk managers are increasingly turning to the insurance industry not just for risk transfer, but consultancy and risk mitigation advice.

Businesses such as Willis Towers Watson are taking complex models to clients to help with predicting, and reducing, the impact of natural disasters.

As Alex Thoms, the firm’s head of large clients in Asia, explains: “We take the details of their sites into our modelling systems and help them understand their exposure to different natural catastrophes, and the likelihood of an event happening.

“That helps them take a more informed view – if they have a significant exposure, we can then think about what to do to mitigate that risk. Have they got the right natural catastrophe defence measures in place? Do they have the ability to move manufacturing to another site if they are hit by a natural catastrophe?

“If you can understand the risk better, then you can go to the insurance market in a more informed way. You end up getting better cover at a better price.”

Risk managers still need to be informed about the benefits of such consultancy services, adds Thoms.

“Companies are aware of the risk, but they are not aware of how brokers, advisers and consultants can help them, and they also need to understand the repercussions, not only in their own business but on their supply chain as well,” he says.

Swiss Re Corporate Solutions head of innovative risk solutions APAC, Didier Bélot, says insurers can help businesses reduce their exposure in several ways.

“Disaster risk mitigation and climate adaptation are keys to strengthening community and business resilience,” he says. “Swiss Re works with governments and public sector entities to develop risk prevention strategies and ways to finance them. Some examples of climate change risk management include reducing emissions through regulations and adding cost to greenhouse gas emissions.

“Adaptation, on the other hand, would include measures such as land-use planning and building codes, response planning, disaster recovery, impact assessment of critical systems and resources and efforts to reduce emissions from existing operations.”

Lloyd’s Asia Pacific chief executive officer Kent Chaplin says the more traditional risk transfer function of an insurer still has an important role to play.

“There are a variety of insurance products to protect against the impact of extreme weather,” he says. Buyers should check that these cover all weather-related perils, he adds. “When Hurricane Katrina struck, the insurance industry paid out almost $80bn in claims, with Lloyd’s alone paying $10.3bn. This covered a variety of losses from property, energy, marine, accident and health, liability and agriculture.

“Regrettably, not all countries have enough insurance to cover their natural catastrophe exposures and there is an underinsurance gap across much of Asia-Pacific.”

Last November, he notes, eight Lloyd’s syndicates announced a disaster resilience facility with £400m ($490m) of capacity for the benefit of developing economies.

Bélot notes that corporations are increasingly exploring the use of tailored parametric products where traditional cover has been hard to obtain.

“Unlike insurance, which indemnifies for a physical loss, parametric products provide a very quick and pre-agreed payout that is based on the measured physical parameter , such as the magnitude of an earthquake or the wind speed of a storm,” he says.