Insurance Protection Symposiumicrm.ntu.edu.sg/NewsnEvents/Doc/ICRM_Sym/Documents...Management Symposium 2016 21 April 2016 [email protected] 1 Mainstream Stories of Protection

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Bridging the Insurance Protection Gap and Data Gap in Asia

Professor Shaun Wang, FCAS, CERADirector, Insurance Risk and Finance Research Centre

Institute of Catastrophe Risk Management Symposium 2016

[email protected] 121 April 2016

Mainstream Stories of Protection Gap for Catastrophe Losses

Source: Swiss Re


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Protection Gap the Biggest in Asia

• Asia has the largest economic loss (62), but the lowest % covered by insurance

Catastrophe Losses in 2013 (USD Billion)

RegionInsured Loss

Economic Loss

Insured as % of Economic Loss

North America 19 32 59%

Europe 15 33 45%

Asia 6 62 10%

Source: Swiss Re Economic Research & Consulting

Good or Bad?


CAT XL Limit versus GDP Index (Asia‐Pacific): Source: Guy Carpenter

Again:Good or Bad?


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What Gap?

Protection Gap?

• If you ask a reinsurer: do you think that 2011 Thai flood, 2011/12 New Zealand earthquake, or 2015 Tianjin Harbor was under‐insured?

Data Gap?

• If insurers have all the exposure data needed, would that close the insurance protection gap?

The True Gap:

• Old insurance business model under‐serves the new reality in Asia


West versus East

Western Countries

• Long history of data

• Mature economy and stable exposures

• High insurance penetration

• Wide acceptance of insurance products

Emerging Asia

• Few historical data, less relevant anyway

• Growing economy and changing exposure

• Insurance penetration low

• Culture sensitivity: firms should not profit from others’ misery (disasters)

• Low income and affordability

• High asset value and growth potential


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Root Causes of Protection Gap

Demand Side Supply Side

Products & ServicesLack of

Awareness/Assessmentof Exposure

Complexity and Ambiguity in Coverage

Income & Price Gap Lack of AffordabilityLack of Operational and

Capital Efficiency

Culture Differences & Regulatory Hurdles

Prefer InvestmentGrowth over Purchasing

Insurance

Inflexible Regulatory Framework

“In Asia, the root cause of insurance protection gap lies in outdated business model ... insurers must adapt to thrive!” ‐‐ Shaun Wang, 2016


Urbanization in the Pearl River Delta:has exposure accumulation translated to

insurance transactions?


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13 August 2015 Tianjin Explosion: Did anyone know about the exposure?

• killed 173 people, injured 797, destroyed 300 buildings, 70,000 vehicles

• Initial estimate for insurance industry exposure of $1.5‐3.3 billion, grew to current est. of $6 billion


Reinsurers must compete with ILS in Cost & Efficiency: driver for M&A?

Munich Re Leadenhall Capital

German based reinsurer UK based ILS fund

45,000 staff 11 staff

With USD 33 bn equity, generated 68 bn of premium in 2012

USD 1.5 bn funds under management, generated 300 m of premium

USD 1.5 m per employee USD 27 m per employee

Source: Artemis; Munich Re


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Improve Insurance Products & Services

• Standard policy can go a long way– Following the 2011 Queensland flood, the insurance industry introduced a standard definition of flood.

– It helped the rollout of flood cover and reduced the number of disputes between insurers and customers.

• Insurers can improve product quality and “standing in the society” by improving customer experience, especially sales agents and claims handling


Two Reasons for Rapid Growth of China’s Agriculture Insurance

$0.00

$2.00

$4.00

$6.00

2001 2003 2005 2007 2009 2011 2013

0.05 0.08 0.08 0.07 0.12 0.140.89

1.84 2.23 2.262.9

4.01

5.11

1. Government subsidy by paying up to 80% of premium since 2007

2. PICC’s extensive network of rural administrators and database of individual farmers’ past crop yields and claims.

In USD Billion


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Orthogonal Multi‐Level Risk Pooling

• At macro‐level, risk transfer/pooling can be arranged

for communities using aggregate parametric indices

– Global reinsurers are best positioned to participate

• At a local level, disbursement of insurance pay‐outs to

individuals can be done independently

– Local insurers are best positioned to participate

• Optimizes Operational Scale versus Capital Efficiency

• Enables a large number of micro‐insurance policies


Potential of Micro‐Insurance

• 4 billion people, about 55% of the world’s population, are still uninsured.

• Micro‐insurance allows low‐income households to better manage their risks.

– A vast untapped pool of small homogeneous risks (with estimated premium of US$ 40 billion).

– It enables insurers to make a vital contribution to economic development in low‐income countries.


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Insurance industry collectively must work with other organizations

• Development banks and international agencies are devoting resources to resilience and climate change

• Actuarial and accounting professions have global influence

• Regulators, Supervisors and Rating Services

– E.g., all major infrastructure loans for projects require an assessment of risk exposures


Cater to Consumer Preferences in Asia

• Emerging economies in Asia are experiencing a growth period, whereas consumers have a preference of investment over pure insurance protection

• Design savings products that can be partially convertible to equity in the local insurance entity

– Contributions to “rebuilding fund”


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Solution to Data Gap: What?Data for Accountability

• Asia needs data to track “accountability” – Bankers who approve loans for infrastructure projects

– Mayors of cities must insure their community against natural disasters

– Crying need for food and drug safety

– Measurer to reduce pollution and environmental damages

• A key role of insurance industry to design risk management products to incentivize increased accountability


Bridge the Data Gap

• Recommended approach: Government‐Industry‐University collaboration

• Leverage on university centers

– Experienced professionals train students

– Deploy students in data collection and cleaning

– Design analytics to support transactions and index‐based products

• Experience from past projects


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Foster Conducive Regulatory & Legal Environment

• Focus of insurance regulation in the Western world has been shifted toward solvency regulation

• In some emerging markets insurance regulator’s focus has been on the role of insurance in economic development

• Good regulation is meant to improve market efficiency

• You’ve found it right here in Singapore!


Thank you!


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