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7/31/2019 ICARUS Hossain As-Saber & McShane
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Topical Climatic Impacts in Australia and Bangladesh:
Adaptation of Business Strategy for the Insurance Sector####
Md. Khalid Hossain, RMIT University, Australia
Sharif As-Saber, RMIT University, Australia
Paul McShane, Monash University, Australia
Abstract
While increased degree of impacts of adverse climatic events is primarily on peoples lives
and livelihoods, these events also have an impact on both public and private sectors. Different
private sector businesses are no exception to the impacts, albeit the scale of impact varies
from sector to sector. Insurance sector is found as one of the sectors which are neither in
danger nor in safe zone in an analysis done by KPMG. As the finding is not country-specific,
it could be argued that different countries may have distinct sectors to be affected by adverse
climatic events and those sectors have to formulate their business strategy primarily as per the
country context. In arguing so, this paper highlights the case of insurance sector in Australia
and Bangladesh with an aim to demonstrate that topical phenomenon of adverse climatic
events in these two countries would notably influence the business strategy adaptation of
insurance sector, albeit very distinctly.
Title of the Conference Panel: Adaptation and Local Institutions
Key words: Insurance, business strategy, adaptation, opportunity, risk.
Introduction
In its history, Australia has experienced a lot of natural disasters. Until recently, the bushfireof Victoria in 2009 was termed as the worst natural disaster in Australias modern history
(SCA, 2009). However, recent flood in Queensland has currently been argued by some as the
worst one, pending the final estimate of loss so far (Shupple, 2011). Even the lately hit
cyclone Yasi has been termed as the strongest ever cyclone in Australian history. Although
counterargument persists, however, all of these adverse climatic events in the form of
#
Paper presented at the Initiative on Climate Adaptation Research and Understanding through the SocialSciences (ICARUS) II Conference, held at the University of Michigan, Ann Arbor, MI USA in May 2011 Corresponding author
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different natural disasters have been linked with climate change by the experts as these are
matched with the predictions of climate models for Australia that hint the increased severity
of hot as well as wet periods in coming days (CSIRO, n.d.; Fogarty, 2011; Greenpeace, 2010,
Smith, 2011) resulting events like drought and bushfire as well as flood and cyclone with
more austerity. Some also argue that due to climate change, Australia is the most vulnerable
amongst all developed countries (The Australian Collaboration, 2011; Tourism NT, 2011).
Intergovernmental Panel on Climate Change (IPCC) in their fourth assessment report (AR4)
also mentioned with very high confidence that regional climate change already occurred in
Australia in the forms of higher temperature since 1950, increased heat waves in north west
Australia, decreased rain in southern and eastern Australia, increased drought intensity as well
as about 70 mm sea-level rise (Hennessy et al., 2007; Wilkins, 2010).
In terms of physical vulnerabilities, Bangladesh has most of the vulnerability features like
Australia. However, although developed countries are also facing climatic impacts, the
vulnerabilities and sufferings are more visible in developing countries, and particularly in
least developed countries (LDCs) like Bangladesh. It is argued that Developing countries are
the most vulnerable to climate change impacts because they have fewer resources to adapt:
socially, technologically and financially (UNFCCC Secretariat, 2007:6). In article 4.9 of the
United Framework Convention on Climate Change (UNFCCC), it is therefore mentioned that
The Parties shall take full account of the specific needs and special situations of the least
developed countries in their actions with regard to funding and transfer of technology
(UNFCCC Secretariat, 2007:11).
It is argued that Bangladeshs needs and situations are more special considering recent
climatic impacts there as like as Australia. In IPCC fourth assessment report (AR4) as well as
in other studies, it is mentioned that Bangladesh has been experiencing warmer summer and
winter, warmer sea resulting frequent low pressure and cyclones, anomalies in rainfall, serious
and recurrent floods as well as water shortage in some areas, sea-level rise along with salinity
intrusion and deteriorated public health (Cruz et al., 2007; Ahmed & Neelormi, 2007, MoEF,
2009). It could be mentioned that as per the Climate Risk Index for 1990-2009 prepared by
Germanwatch, Bangladesh has been observed as the most vulnerable country in the world due
to climatic risks. However, just for the Climate Risk Index for 2009, Australia ranked as the
6th most affected country while Bangladesh ranked as the 8th most affected country in 2009(Harmeling, 2010).
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While increased degree of impacts of the adverse climatic events is primarily on peoples
lives and livelihoods, however, in the broader spectrum, these events have an impact on both
public and private sectors due to these sectors people-centric mode of operation. Different
private sector businesses are no exception to the impacts, albeit the scale of impact varies
from sector to sector. In 2008, one of the worlds four largest audit firms, KPMG, came up
with a report, Climate Changes Your Business by reviewing sector level business risks and
economic impacts of climate change. Based on 50 reports, KPMGs analysis concluded that
six business sectors, namely, oil and gas, aviation, healthcare, financial, transport and tourism,
are more exposed to the impacts of adverse climatic events but comparatively less prepared to
address the impacts (termed as Danger Zone). In the analysis, insurance sector along with
eight other sectors are viewed neither in danger nor in safe zone, which is termed as Middle
of the Road. Whereas only three sectors have been found in the safe zone (termed as Safe
Haven), although with some doubts due to lack of adequate information (KPMG
International, 2008).
As the identified sectors indicated above are not country-specific, it could be argued that
different countries may have distinct sectors to be affected by adverse climatic events and
those sectors have to formulate their business strategy primarily as per the country context,
and secondly, as per the context of any of their international market. Since insurance sector is
a vibrant sector almost in all countries where they operate and a good amount of academic
discussions happened in linking climate change and insurance sector, this paper has
highlighted the case of business strategy adaptation in insurance sector in Australia and
Bangladesh considering topical phenomenon of adverse climatic events in these two countries
which are also very distinct in terms of development status. While showing that discreteness,
this paper argues that in none of these two countries insurance sector is in the exact point of
Middle of the Road as per the placement of global insurance sector by KPMG in its
framework. Rather due to discrete reasons, insurance sectors in these two countries could be
placed in Danger Zone and in a different point of Middle of the Road. This argument leads
to the conclusion that business strategy adaptation for insurance sector in these two countries
would be different in light of the definition of climate change adaptation.
Climate Change Adaptation and Adaptation of Business Strategy
It could be argued that so far there has been a considerable amount of debates just to provide adefinition of climate change adaptation. Although the generic idea is almost same in those
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debates, but major divisions lie in terms of scope, process and scale, such as, whether it would
be autonomous (bottom-up) or imposed (top-down) as well as whether it entails migration
or unlimited coping and whether it is biological or mechanical. In IPCC fourth assessment
report, it has been mentioned that Adaptation is the adjustment in natural or human systems
in response to actual or expected climatic stimuli or their effects, which moderates harm or
exploits beneficial opportunities (IPCC, 2007:6). Ian Burton provided a closely matched
definition by saying that Adaptation to climate is the process through which people reduce
the adverse effects of climate on their health and well-being, and take advantage of the
opportunities that their climatic environment provides (Burton, 1992; Burton, 1997; cited in
Ahmed, 2006:30). Although quite human-centric, Leary (1999:307) also reiterated the similar
definition of others by defining adaptation as human responses to the direct and indirect
effects of climate change and variability for the purpose of lessening detrimental
consequences or enhancing beneficial consequences.
From an individual and economic sectors point of view, Smith et al. (1996, cited in Ahmed,
2006:30) argued that Adaptation to climate change includes all adjustments in behaviour or
economic structure that reduce the vulnerability of society to changes in the climate system.
Smit et al. (2000:225) also mentioned about adjustment by mentioning that adaptation refers
to adjustments in ecological-social-economic systems in response to actual or expected
climatic stimuli, their effects or impacts. From a business point of view, they even referred to
the policies promoting measures to mitigate or reducing greenhouse gases as adaptation by
considering the adjustments by businesses to changes in the political-economic environment
associated with climate change (Smit et al., 2000:225).
Based on their study on nine companies in house-building and water utilities sectors in the
United Kingdom, Berkhout, Hertin and Gann (2006) took an attempt to define climate change
adaptation from a business organizations point of view. To some extent, they challenged the
traditional definition of adaptation by concluding that for business organizations adaptation
rarely happens autonomously as it is very much dependent on policy framework and market
mechanism. The framework they proposed argued that a business strategy of wait and see to
be convinced about climatic impacts and related opportunities also falls within adaptation of
business strategy. They further argued that risk assessment and options appraisal, bearing
and managing risks as well as sharing and shifting risks fall within the framework ofbusiness strategy adaptation to climate change (Berkhout, Hertin, & Gann, 2006:151). Their
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arguments of non-autonomous business strategy adaptation could also be supported by the
arguments of Kolk and Pinkse (2008:1360), who mentioned that the whole process of risk
aversion through companies business strategy adaptation is very dynamic due to fast-
changing public opinion, regulation, competition and scientific evidence on global
sustainability issues.
However averting the risks of climate change through reactive organizational adaptation is not
considered as enough in some literatures considering the complexity, unpredictability and
scale of climate change impacts. In this regard, Linnenluecke and Griffiths (2010) argued for
developing organizational resilience as a proactive business strategy for averting risks due to
climate change although they acknowledged that without experiencing major climatic shock
organizations do not prefer to develop special capabilities to address climate change, which
finds similarity with the argumentative premise of Berkhout, Hertin and Gann (2006).
Linnenluecke and Griffiths (2010) emphasized on resilience as part of business strategy
adaptation as they opined that resilient organizations are more capable of surviving even
after experiencing major climatic shocks and these organizations can response to the situation
both suddenly and gradually.
It could be argued that Berkhout, Hertin and Gann (2006) did not focus adequately on the
opportunity side for business which is also included in the widely accepted definitions of
climate change adaptation as mentioned above. Although most of the companies could not
find a clear link between climate change impact and opportunity utilization (Kolk & Pinkse,
2004), based on information from 500 multinational companies (MNCs) regarding their
carbon disclosure projects (CDPs), Kolk and Pinkse (2008) argued that climate change is
assisting MNCs to take the opportunity of developing green firm-specific advantages and
those advantages are also helping to gain profit, to grow and to survive. The utilization of
these opportunities is taking two different shapes with an aim to reduce greenhouse gas
emission or mitigating climate change, namely compensation and innovation (Kolk &
Pinkse, 2005:8).
Through compensation, some companies try to reduce their carbon footprint internally
within the company through internal transfer of emission reduction, vertically through
supply chain measures and horizontally through acquiring emission credits in case of theirinability to reduce carbon footprint. Arguably innovation as a method of utilizing
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opportunity is one step ahead for companies than compensation, as through innovation,
some companies not only reduce their individual carbon footprint but also assist others to
reduce their carbon footprints. In this strategic option, these companies try to improve a
distinct business process innovatively within company and aim at developing innovative
products at their supply chain which can reduce emission. Beyond these, those companies try
to innovate new products for market to reduce economy-wide emission, with strategy to be
more competitive than their business rivals in the market through different strategic
partnerships (Kolk & Pinkse, 2005:8; Kolk & Pinkse, 2004). However, the opportunity
utilization through compensation and innovation are not equally applicable to all business
sectors due to their nature of business. As manufacturing sector would be able to respond to
climate change in its supply chain through reducing emission, insurance sector would not be
able to do the same due to its distinct nature of business (Kolk & Pinkse, 2004).
Albeit compensation and innovation are discussed in the context of emission reduction,
however, these could be also applicable in adaptation of business strategy in relation to
climate change. Through taking adaptive measures in the supply chain affected by climate
change impacts, companies could perhaps enhance competitiveness in comparison to their
competitors not taking similar measures. Companies more in side of innovation would
innovate new products and processes through research and development that could facilitateadaptation to climate change. Some companies can utilize the opportunities coming naturally
while they address climate change as part of their business strategy. These could be utilized
through exploitation of consumer choice for green products and innovation of products and
processes that are climate-friendly (Porter & Reinhardt, 2007).
However, this even take the shape of exploitation of favorable climatic conditions resulted
due to climate change in the form of warm weather visible in agriculture sector of some arctic
countries due to having prolonged cropping period (Linnenluecke & Griffiths, 2010). Some
sectors are also exploiting the risks posed on consumers facing physical risks and regulatory
risks. Insurance sector and banking sector are argued as within these sectors which are taking
opportunities due to increased risk coverage due to climate change and increased financial
transactions in emission trading schemes (Kolk & Pinkse, 2004).
Adverse Climatic Events and Adaptation for Insurance Sector
As insurance is viewed as a risk management tool, irrespective of climate changephenomenon, insurance sector has long been associated with weather risks as natural disaster
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is a regular incident around the world. So it could be argued that insurance sector is already
accustomed with adverse climatic events and in a better position to address climate change in
comparison other business sectors. Insurance sector could be viewed as a sector which is to a
certain extent can be benefited from climate change as the severity of climatic events
influence people and different sectors to choose different insurance products increasingly
(Botzen, van den Bergh, & Bouwer, 2010; Herweijer, Ranger, & Ward, 2009). In the United
States of America (USA), while the number of flood insurance policies was around 4 million
in 1997, the occurrence of Hurricane Katrina and some other major floods pushed the number
of policies around 5.55 million by the end of 2007 within a relatively short period of time,
indicating a thriving insurance sector due to adverse climatic events in recent times
(Kunreuther et al., 2009). It has been found that in between 1980 and 2005, the insurance
industry in the United States paid around US$320 billion to policyholders in relation to
weather related losses. So it could be argued that without the opportunity of making profits,
insurance sector could not manage this payout (U.S. Government Accountability Office,
2008).
Moreover, it could be argued that due to climate change, people would face the severity of
natural disasters and in some cases would experience major and severe natural disasters for
the first time in their life (like the flood in Queensland). In this way climate change is
assisting the insurance industry to get new individual clients. Based on his study of three
communities in East Tennessee in the USA regarding those communities participation in The
National Flood Insurance Program (NFIP) from 1978 to 2006, Luffman (2010, p.320) found
a positive correlation between flood events and insurance purchases as well as the clear
evidence that after having an experience of major disaster, people tend to go for purchasing
insurance.
In this connection, insurance industry also receives necessary policy support from the
government to be in the market actively and profitably, as the industrys role is seen as
supportive to disaster management as well as reducing the budgetary burden of government in
setting special support fund (Atmanand, 2003; Hoeppe & Gurenko, 2006). For the sake of
their profitable operation, insurance industry generate information for their policyholders to
be more cautious and prepared for disasters to make the disaster loss as minimum as possible
(Atmanand, 2003). They also cover up the disaster loss of billions of dollar which could ratheradversely affect the economy (Hoeppe & Gurenko, 2006). It has been also found that
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insurance sector is coming up with innovatory products suitable for consumers in context of
climate change impacts (Kolk & Pinkse, 2004).
Despite of the above-mentioned facts, it could not be argued that insurance sector is only
profiting and taking opportunities from adverse climatic events as well as entirely is free from
risks and threats. There are evidences that unpredictable, frequent and complex climatic
events as well as severity of those events are making insurance business vulnerable,
unprofitable and in some cases unsustainable since the insured costs industry needs to cover is
far more than what they receive from insurance premium (Romilly, 2007). This inevitably is
resulting increased premiums and deductibles to run the insurance business which is creating
extra pressure on the policy holders and the government. When policy holders can no longer
afford the premium to be paid to private insurers, to protect their citizen, government has to
take the burden of introducing affordable insurance programs or subsidize the insurance
industry (U.S. Government Accountability Office, 2008). In this case, insurance sectors role
would not be much appreciated by the government and people, arguably due to absence of
social responsibility. However, no business sector intends to do business in such a manner
that makes it bankrupt at the cost of social responsibility only.
Additionally, the complexity of climate change has imposed challenge on insurance sector to
devise their business strategy by identifying new products suitable for them and the policy
holders, who are sometimes the most vulnerable and poorest in the society (Linnerooth-Bayer
et al., 2009). It is also becoming more technical for the sector to design their products due to
increased intricacy of adverse climatic events. Some insurance companies are opting for
index-based insurance by setting baseline of intensity, such as the amount of rainfall, above or
below which they would pay out the agreed amount to policy holders suffered from flood or
drought. However, as this is not directly related with the amount of actual loss, sometimes
policy holders may remain unsatisfied (Linnerooth-Bayer & Mechler, 2006). Moreover,
dispute may arise in cases where policy holder and the insurance company interpret the
different technical terms associated with climatic events differently.
This whole scenario in relation to risks, opportunities and preparedness to face climate change
impacts has influenced the analysis done by KPMG regarding sector-specific business risk
due to climate change. As shown in figure 1, KPMG put the insurance sector in Middle of theRoad as it has been concluded in that analysis that insurance sector is exposed to medium
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risk and the sector has relatively good amount of preparedness to counter those risks. In could
be noted that, in KPMGs analysis, sectors that are exposed to relatively high risk but have
relatively low preparedness are placed in Danger Zone, whereas, sectors that are exposed to
relatively low risk but have relatively high preparedness are placed in Safe Haven (KPMG
International, 2008).
Figure 1. Sector-wise perceived risk versus preparedness map in KPMGs analysis
(slightly improved)
Australian Insurance Sector and Topical Climatic Impacts
Taking the scenario of adverse climatic events in Australia and the relationship of insurance
sector with such events into account, this paper endeavors to analyze mainly the newspaper
contents in relation to recent Queensland flood and the impact of it on insurance sector inAustralia to observe where the sector stands in the debate now and where it is heading
In risk, but have
considerablepreparation
Endangered!
Totally safe
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towards in near future. This may be viewed as externally invalid to some extent as views of
academia and business sector are not always reflected in newspaper articles and reports.
In spite of this limitation, from the analysis, it could be argued that Australian insurance
industry would have to face more risk and threat in their business than the opportunity due to
the latest adverse climatic events. Although insurance sector is getting more clients due to
adverse climatic events, but the sector is blamed for not covering the loss enough, since they
are showing excuses of unavailability of proper definition of flood with reference to storm
and non-coverage of different things in the insurance policy that are lost (Disasters Offer
Lessons, 2011). The opportunity side is observed through the expansion of insurance
business due to adverse climatic events, as the supportive information suggests that in 4 years
the insurance policies with flood coverage have increased around 4 times (Disasters Offer
Lessons, 2011). Whereas customer dissatisfaction is resulted and insurance sectors
reputation is tarnished when an insurance policy with cyclone coverage does not cover the
damage caused by storm surge associated with cyclone. Eventually government is intervening
and putting pressure on the insurance sector to broaden the coverage of policy with a threat of
strict regulation (Yeates, 2011; Mickelburough & Harvey, 2011).
However, there are also evidences that insurance sector in Australia is under heavy pressure
of workload to work out the claims of their clients. This pressure is substantially increasing
due to the increase of adverse climatic events in Australia in recent time (The Realities Of
Insurance, 2011). Just only the insurance claims due to the flood in Queensland is expected
to reach a 6 billion dollar mark, leading towards a huge work pressure for the insurance sector
for assessment and pay out (Johnston, 2011a). It is already perceived that this huge pay out
would certainly push up the insurance premium for the survival of insurance sector of
Australia as the sector also has to pay extra operational money for assessment even by
recruiting qualified assessors from abroad (Disasters Stretch Companies, 2011; Keane,
2011). All of these factors have made Australia a risky place for insurance business as opined
by the global reinsurance multi-national company Swiss Re very recently, hinting that they
are also considering to increase the premium to be paid by Australian domestic insurance
companies to them in arguing for their existence also (Johnston, 2011b).
Wilkins (2010) analyzed the perspectives of Australian insurance industry in context ofclimate change. Being an insurance professional, he basically highlighted the positive sides
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regarding preparedness of insurance sector in Australia. He mentioned that Australian
insurance industry has been preparing to face climate change by engaging with the
government, assisting communities in increasing their awareness and resilience, incentivizing
customers and leading by example and facilitating employee action (Wilkins, 2010:346). He
mentioned the difficulty Australian insurance industry is facing, as there is a cost for
community of about 300 million Australia dollars each year due to flood losses. Wilkins
(2010) indicated that due to associated complexities, insurance companies do not provide full
cover, however, it has not been acknowledged by him as a major risk related with reputation
for the industry which may lead some regulatory risks too.
Figure 2. Probable Positioning of Australian Insurance Industry in terms of perceived
risk versus preparedness map of KPMG
In risk, but haveconsiderable
preparation
Endangered!
Totally safe
Insurance
sector of
Australia
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Based on the discussion above, we are arguing that Australian insurance sectors position
would be at some extent different than the position of global insurance sector as a whole that
was placed in KPMGs analysis. As shown in figure 2, it could be argued that, due to
increased climatic risks as well as risks associated with reputation and regulation, perceived
risk for Australian insurance sector would be higher in comparison to insurance sector
considered at a global scale. It could be further argued that, although Australian insurance
sector has a considerable amount of preparedness, it is not prepared enough to manage its
reputation, influencing regulators in a positive way for the sector as well as unexpected
amount of payout and workload. This could make the perceived level of preparedness for
Australian insurance sector lesser in comparison to insurance sector considered at a global
scale by KPMG. Therefore, using original sector-wise perceived risk versus preparedness map
in KPMGs analysis, it could be observed from figure 2 that Australian insurance sector may
be in the Danger Zone rather than in Middle of the Road. Consequently, adaptation of
business strategy for the insurance sector in Australia would be more towards risk aversion
approach of climate change adaptation by minimizing perceived risks and increasing
perceived level of preparedness.
Bangladeshi Insurance Sector and Topical Climatic Impacts
Although Bangladesh is vulnerable like Australia in terms of scale of climatic impacts, andmore vulnerable than Australia as a LDC, it could be argued that the case of insurance sector
in Bangladesh is rather different than the insurance sector in Australia due to an almost
opposite customer base and development status of the sector itself. Akter et al. (2011:287)
indicated this opposite scenario by concluding that, In Bangladesh, a private insurance
market for property damage and livelihood risk due to natural disasters does not exist. They
tested two different institutional-organizational models in their study in relation to the
feasibility of private micro-flood insurance provision in Bangladesh and found that the
provision is not profitable for private insurance companies. The reasons identified by Akter et
al. (2011) are the reluctance and ignorance of potential insurance policy holders who are
mostly illiterate and poor; the big unattractive poor customer base struggling to pay insurance
premiums and the high administrative costs for the insurance sector without a viable risk-
sharing instrument in a weak political economic context of the financial market. They argued
that it could be viable in case an effective public-private partnership is in place based on well-
developed risk-sharing instrument which is also argued by Mills (2007). They further opined
that insurance schemes can take the form of micro-credit by involving large micro-credit base
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in Bangladesh by changing the mindset of potential policy holders that drives them to think
that government would take the responsibility of flood risk protection (Akter et al. (2011).
However, due to the climate justice argument related with climate change phenomenon, it is
a well developed argument that the victims of climate change in developing countries must
not bear the costs of climatic disasters as they are not responsible for climate change. Rather
their government has the responsibility to claim compensation from the historical polluter
countries that are responsible for climate change and manage the costs to be borne by affected
people (Tola & Verheyen, 2004). Based on this argument, it could be said that even if a
viability of climate insurance can be established in Bangladesh through public-private
partnership, there would be expectation that government would pay the premium on behalf of
the affected communities and the premiums would be managed from the compensationreceived from historical polluter countries as identified in UNFCCC. However, this means
that there would be an absence of visible customer base for the insurance industry and the
insurance schemes would be not be much different than an aid scheme. It can be argued that
this process would not generate competition in insurance sector in Bangladesh for climate
insurance and government would not be motivated enough due to extra but huge amount of
responsibility.
Moreover, it has been found that despite of its growth over the years, insurance sector in
Bangladesh is a small economic sector and thereby does not have a considerable policy
attention. Moreover, due to heavy presence of government ownership in life and non-life
insurance schemes over the years, competition within private sectors has not been developed
and global reinsurers do not find interest in Bangladeshs market. In 2008, per capita premium
for insurance was only US$ 4.4. This is far below than the global per capita premium of
US$634 in 2008 and further down than the Australian value of US$3386.5 or the American
value of US$4078 (Kwon, 2010; Khanal, 2007; Swiss Re, 2009). With this level of
development status of the sector, it could be argued that the insurance sector in Bangladesh
seriously lacks the capacity and confidence to handle a very delicate insurance scheme like
climate insurance.
Despite all these facts, a number of researches concluded that climate insurance is viable in
low income countries like Bangladesh. Global reinsurance giant Swiss Re (2010a:30) argued
that, Due to the rapid growth of microfinance in recent decades, there is now little doubt that
demand for financial services among the low-income population exists and has huge
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potential. Swiss Re in its market research found that micro insurance is a viable and
profitable option for insurance companies in low-income countries like Bangladesh.
Regarding climate insurance, Swiss Re (2010b) opined that a public-private partnership can
easily make the climate insurance viable in vulnerable low-income countries like Bangladesh.
In the Bangladesh Climate Change Strategy and Action Plan, Bangladesh Government has
also kept a programme on Risk Management against Loss of Income and Poverty under the
Comprehensive Disaster Management Theme. In this programme, all three actions are
related with insurance with Ministry of Finance, insurance sector and non-government
organizations as responsible agencies. Considering the undeveloped status of insurance sector,
the programme did not aim very high and focused on developing and piloting insurance
schemes to address the losses of property and income (MoEF, 2009:45).
Figure 3. Probable Positioning of Bangladesh Insurance Industry in terms of perceived
risk versus preparedness map of KPMG
In risk, but haveconsiderablepreparation
Endangered!
Totally safe
Insurance
sector of
Bangladesh
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Based on the discussion above, in case of Bangladesh, we are arguing that the position of
insurance sector in Bangladesh would still be at the Middle of the Road but due to
completely opposite reasons as presented by KPMG for its positioning of global insurance
sector. As shown in figure 3, it could be argued that, although perceived risk for Bangladesh
is very extreme and the country is in Danger Zone due to that, but insurance industry as a
business sector does not perceive any major risk to their existing business operations.
Moreover, as the sector has not dealt with climate insurances like disaster insurance or crop
insurance, its perceived level of preparedness is also low. As both risk and preparedness
perceptions are lower for insurance sector in Bangladesh in comparison to global insurance
industry as a whole as per KPMGs analysis, using original sector-wise perceived risk versus
preparedness map in KPMGs analysis, it could be observed from figure 3 that insurance
sector in Bangladesh is still in Middle of the Road but in a different quadrant.
Consequently, adaptation of business strategy for the insurance sector in Bangladesh would be
more towards learning and opportunity utilization approach of climate change adaptation
by exploring available opportunities with cautious approach towards perceived risks and
increasing perceived level of preparedness.
Conclusion
In this paper we reiterate the fact that adaptation of business strategy for any business sector
depends on proper identification of current impacts and foreseeable impacts of climate change
on that sector. For a business sector, the perceived risks range from physical to regulatory and
from reputation-related to financial loss. Perceived level of preparedness is very closely
linked with each of the risks as that determine the overall capacity of risk aversion by a sector.
In this regard, the perceived level of risk versus perceived level of preparedness framework by
KPMG has provided a useful tool to work out business strategy adaptation due to climate
change.
However, we argue that for discussing business strategy adaptation for a particular business
sector in a particular country, the aggregate approach at a global scale as followed by KPMG
for each sector would not be viable. In supporting our argument, we presented the examples
of two countries with different development status susceptible to high amount of physical
risks due to climate change. We therefore argue that any approach of exploring business
strategy adaptation due to climate change must be country-specific, sector-specific and evencompany-specific.
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From the discussion on nexus between adverse climatic events and insurance sector, it could
be further argued that topical phenomenon of adverse climatic events in Australia and
Bangladesh have already started to reshape the in-country business strategy of insurance
sector and would notably reshape the strategy in coming days. This reshaped business strategy
would be concentrated on balancing stricter government regulation and policy in relation to
flexible assessment and payout as well as on balancing profit and existence in relation to
social responsibility and customer satisfaction. The resulted business strategy in its extreme
would be also seen as closure of insurance companies that are bankrupt due to huge payouts
leading apathy to offer disaster insurance products for the severe, unpredictable and complex
disasters.
Companies that would be more interested about the opportunity side would reshape their
business strategy by innovating new insurance products and attracting clients to buy those
products whereas charging more premium from the policyholders and negotiating less
premium with the reinsures through taking advantages from adverse climatic events.
Consequently, it could be argued that the adaptation of business strategy of Australian and
Bangladeshi insurance sector due to adverse climatic events is imminent and happening, but it
would not be one-dimensional reshaping and business strategy would be reshaped through a
balance of exploring new opportunities and mitigating associated risks, albeit in a country-
specific way.
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