Climate change is one of the biggest risks to the insurance industry, says Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz.
She said this calls for the industry to pursue a different path from what history has shown, in determining the growth strategies for the future.
“The cost of climate change, without action, is estimated to be at least five per cent of global gross domestic product each year, not to mention its significant impact on human society.
“Some effects of climate change are already being felt in increased frequency and severity of weather related to natural disasters, water scarcity and crop failures,” she said in her opening remarks at the 26th East Asian Insurance Congress here today.
Asia’s exposure to climate change effects is also anticipated to increase, according to Zeti. “In 2011, Asian countries accounted for 70 per cent of the US$380 billion in economic losses from natural disasters. However, only a quarter of that was insured.
“The recent floods in Thailand last year was one of the costliest catastrophes in history,” she said.
As insurance penetration rises across Asia, she said, property insurers will face a greater concentration of exposure to natural disasters. “Life insurers will also be impacted in other ways, including higher incidences of diseases, while also experiencing pressure on long term returns on investment,” Zeti said.
The insurance industry therefore, she said, needs to manage such exposure as well as act as a catalyst for societies to adapt to climate change. “Risk management systems in particular, need to be able to capture and aggregate exposure to such event risks in a timely manner.
“Also important is to incentivise efficient energy use through innovative product design and pricing,” she added.
In addition, she said, the industry needs to come together to seek out opportunities to partner with government and non-governmental organisations to facilitate improvements in urban planning, infrastructure design and building codes.
The integration of environmental and social considerations in insurers’ corporate strategies and operations, she added, will clearly become increasingly important to long-term sustainability. “This must also include a sustained focus on financial inclusion to achieve balanced and equitable growth.
“It is important is to ensure all households continue to have meaningful access to financial products and services and ensure that even those who currently have financial access, do not become excluded.
“This is especially in an environment where financial products and services are becoming increasingly unaffordable or complex,” Zeti said.
It is estimated that up to four billion people worldwide require low-cost insurance protection.
The low-income population in the Asia-Pacific, she said, account for about 70 per cent of the global low income population. “The need for protection from illnesses, natural disasters and other perils is more acute for this vulnerable segment,” she added.
Zeti said although Asia now accounts for most of the global microinsurance market, covering between 350 million to 400 million people, the overall participation rate was still low due to liquidity constraints in this segment of households, low financial literacy and business models that are not inclined towards such low-income segments.