Introduction
1 Thank you for inviting me to affix you this afternoon. The theme of the convention, Risk Resilience Reimagined, is a well timed reminder of the significance of constructing our capabilities to navigate advanced dangers.
New Uncertainties in an Uncertain World
2 We are gathered right here in unsettling instances. The struggle in Ukraine has value lives, led to a refugee disaster, precipitated an unprecedented international response and led to profound new uncertainties in an already unsure world.
- There will likely be stresses on the world’s monetary, power, meals and commodities markets – simply final month, the value of crude oil hit a 14-year excessive, rising by greater than 70% in comparison with a yr in the past
Source: The International News: Brent crude soars to a close to 14-year excessive of $140 per barrel, March 2022 . - Macroeconomic coverage, already in a troublesome spot, is now harder, as a result of it’s now not nearly shocks to inflation, but in addition about shocks to progress, and the social instability that might come about, in consequence of not managing these pressures nicely.
3 All this has come at a time when the world economic system continues to be fragile, recent from latest battles with the COVID-19 pandemic, which exacted a heavy value.
- Over 6.2 million
Source: Worldometers, April 2022 lives are estimated to have been misplaced. - The pandemic was not solely a well being disaster. APAC’s creating economies skilled practically US$2 trillion in financial losses between 2020-2022
Source: ESCAP, Economic and Social Survey for Asia and the Pacific, 2022 . - Even at this time, greater than two years on, the pandemic continues to evolve and affect well being, lives and livelihoods.
4 And scientists are sure that this received’t be our final pandemic.
- On common, over 200 epidemic outbreaks and 5 rising infectious ailments are reported yearly
Source: Munich Re, Epidemic and Pandemic Risk Solutions . - And the gradual deterioration within the commons, loss of biodiversity and elevated incursions within the pure world have led to the next incidence of zoonotic spillovers, resulting in a rising frequency of pandemics.
5 And then there’s the pressing want for local weather motion. Here, the science is evident. Our actions and inactions have penalties.
- The altering local weather is bringing about rising sea ranges and the next frequency of excessive climate occasions. These threaten to displace lives, livelihoods and communities, with financial and social penalties that include a hefty price ticket.
- This is particularly pertinent in Asia, which is geographically liable to pure catastrophes. The costliest pure catastrophe in 2021 was the flood in Henan province final July which resulted in a complete financial value of over US$2 billion
Source: Asia Insurance Review, Insured losses from Henan floods strategy US$2bil, September 2021 as of September final yr, and this quantity is barely anticipated to move north. - These climate extremes will proceed to happen, inflicting cascading impacts that can change into more and more tough to handle.
6 Amidst this sobering backdrop, what has been taken with no consideration all alongside is now clear: our interconnected and interdependent international system is extremely fragile and weak.
Demand for Resilience Capabilities and Opportunities for the Insurance and Finance Sector
7 It is due to this fact no marvel that nations, communities and firms are eager to construct resilience capabilities throughout a number of dimensions – human, monetary, operational and technological.
- Past investments in digitalisation, as an example, have been essential in enabling Singapore’s monetary sector to pivot to distant working, thereby making certain the continued supply of companies via the pandemic.
- We additionally see new embedded finance partnerships rising, aided by digitalisation, as insurers companion tech gamers to ship monetary companies to a much bigger and broader viewers.
- Human capital has additionally emerged as a key differentiator within the pandemic. Offering versatile hybrid work fashions, investing in workers’ wellbeing, and upskilling them to organize for the digital and sustainability economic system will likely be vital in attracting and retaining expertise.
8 Beyond these resilience capabilities, which all governments and corporates have to urgently develop, there will likely be alternatives for insurers and reinsurers to assist construct societal and company resilience and handle ever-present dangers.
9 Let me describe two of probably the most vital dangers, the challenges and alternatives for the finance and insurance coverage sector, and how Singapore seeks to assist vital efforts in every space.
Pandemic Risks
10 First, within the space of pandemic dangers.
11 While economies have relied on authorities finances stimulus measures and reduction schemes, this has taken a big toll on fiscal stability sheets and has typically come at the expense of much-needed authorities expenditure in different areas similar to local weather.
12 If we’re to be taught to dwell with COVID and different pandemics, we might want to put in place measures to construct long term monetary resilience to such occasions.
13 Insurance might be notably efficient in cushioning the financial disruption from such outbreaks. The insurance coverage business has begun to adapt and we now see extra protection for pandemic disruption. Three of the highest 5 insurers in Singapore, as an example, supply insurance coverage for occasion and journey cancellation to assist mitigate the chance of disruption of plans from mandated closures or lockdowns.
14 More must be carried out, nevertheless, in enhancing the affordability, accessibility and high quality of enterprise interruption insurance coverage, to make it higher suited to the wants of companies. Such covers are sometimes an add-on to property insurance coverage, and pay-outs are tagged to bodily harm to property, which signifies that enterprise interruption on account of a pandemic will not be lined, or is dear and restricted in scope.
15 As a flood of claims triggered on a worldwide foundation by quick spreading pandemic variants pose vital challenges to creating pandemic threat insurable, a extra resilient strategy for economies and companies is to assist pandemic threat sharing and threat pooling. Pandemic threat financing for essential or extra weak sectors via a public-private strategy, combining funds from the federal government, key corporations in these industries, and insurers might present much-needed fast reduction.
16 Beyond modern approaches, the provision of knowledge will take these efforts additional, making certain extra environment friendly, seamless and efficient protection.
- The pandemic has offered the insurance coverage and threat modelling business good knowledge factors on related elements impacting enterprise continuity throughout nations and sectors, and additional threat analytics and modelling can assist extra customised options.
17 Policy makers and corporates can even profit from exchanging insights with the monetary companies business on behaviours and insurance policies which higher promote pandemic resilience in companies (together with enterprise continuity plans and better digital adoption). Through incorporating such behaviours and expectations as half of their underwriting, insurers can even incentivise higher pandemic threat administration.
18 Singapore is taking energetic steps in the direction of constructing stronger capabilities in pandemic threat financing. A key platform is the Global-Asia Insurance Partnership or GAIP, which is a tripartite partnership between the worldwide insurance coverage business, regulators and academia. It goals to supply actionable analysis insights, develop coverage suggestions and co-create modern options for key dangers that Asia faces. Pandemic threat has been recognized as one of the main focus areas for GAIP.
Climate Risks
19 Let me now flip to local weather dangers.
20 Climate dangers will end in structural shifts to corporations’ risk-return profiles. More frequent catastrophic occasions may cause extreme impairment to enterprise fashions, result in substantial revenue and productiveness losses, and make sure tail dangers uninsurable or insurable solely at unaffordable charges.
- By some estimates, if no motion on local weather change is taken, Asia’s economic system could be 26% smaller by 2050, while ASEAN’s economic system could be 37% smaller
Source: Swiss Re Institute, Economics of Climate Change, 2021 .
21 The downside of underinsurance can already be seen.
- In 2021 alone, the financial value of catastrophes within the Asia Pacific area was US$50 billion, accounting for 18% of the worldwide complete. However, Asia is considerably underinsured at solely 17% of the full financial value in comparison with the worldwide common of 57%.
Source: South China Morning Post, Natural disasters value Asia-Pacific US$50 billion final yr, of which simply US$9 billion was lined by insurance coverage, says Munich Re, January 2022
22 Asia’s insurance coverage markets are rising, however the tempo of progress will be unable to match the area’s rising safety wants from pure catastrophes. A definite lack of prime quality and standardised knowledge to precisely quantify threat publicity for local weather dangers or to construct dependable fashions additionally stays a key problem.
Risk Financing for Physical Climate Risk
23 To assist pure disaster threat financing within the area, Singapore has been stepping up efforts to assist the event of modern threat pooling options in addition to higher threat modelling and analytics capabilities. We see insurance-linked securities or ILS, which assist extra fund elevating from the capital markets, as a key answer.
- Asia’s ILS market is rising, as extra cedants, each sovereign and corporates, look to such autos to lift extra threat capital.
- Singapore is now a number one domicile for ILS issuances within the Asia Pacific. As of June 2021, our ILS market share was 14%
Source: Aon ILS Annual Report 2021. There was a complete of 7 ILS transactions from 30 June 2020 to 30 June 2021 from Singapore, out of a worldwide complete of 51 issuances. of the worldwide market. 21 ILS transactions have been launched in Singapore since 2018, together with a rising quantity of transactions by Asian cedants, masking a number of perils similar to storm, flood and cyclone threat in Asia. - Singapore will construct on this momentum and anchor capabilities in ILS structuring, threat modelling, loss reserve changes, and fund administration to higher assist company and sovereign cedants within the Asian time zone. We are additionally engaged on enhancing our regulatory, company, tax and bond itemizing regimes to assist a wider vary of ILS dangers and devices.
24 Ultimately, supporting the expansion of higher local weather threat financing options would require robust threat analytics, knowledge and threat modelling efforts. We have to share assets, change notes and work collectively.
- There can be robust and broad ranging regional cooperation to boost Asia’s resilience in local weather and catastrophe threat. One instance is the ASEAN Disaster Risk Financing and Insurance programme (ADRFI), which can leverage the experience of academia, governments and the business to assemble a excessive decision and goal pure disaster database. This will enhance the standard and availability of pure disaster threat knowledge and analytics.
Green and Transition Risk Financing
25 What else can the insurance coverage neighborhood do? As threat financiers, insurers present threat financing which is instrumental to the functioning of key sectors and infrastructure, together with the power and chemical substances, aviation and transport sectors. Some of these sectors type a sizeable half of international and Asian economies however should not inherently “green”. Risk financing and insurance coverage might be an vital lever in participating the related stakeholders and supporting a progressive low-carbon transition of these sectors.
26 As half of the underwriting course of, insurers can work intently with their shoppers in these sectors, to know and have interaction them on their local weather threat exposures, transition plans and pathways, and assist them with threat administration analytics and insights. Ideally, insurers ought to journey alongside shoppers in order that they make concrete and progressive enhancements of their environmental efficiency over time.
- It has been heartening to see insurers stepping ahead of their assist of the Poseidon Principles for Marine Insurance, launched in December 2021.
- This units a framework for accountable insurance coverage practices within the maritime sector, whereby insurers have interaction with their shoppers and promote environmental stewardship and push for significant decarbonisation.
- This, in flip, helps the International Maritime Organisation’s goal of peaking greenhouse fuel emissions from worldwide transport as quickly as attainable, and halving complete annual emissions by 50% as in comparison with 2008
Source: International Council on Clean Transportation (ICCT), IMO’s Carbon Intensity Target Could be The Difference Between Rising or Falling Shipping Emissions This Decade, May 2021 .
27 Beyond transition sectors, insurance coverage gives vital threat capital for the rising inexperienced economic system.
- As the area more and more invests in options together with carbon seize, renewable power technology and the manufacturing of future fuels similar to hydrogen, insurance coverage will help overcome some of the friction, uncertainty and threat concerned in deploying such much-needed infrastructure and in facilitating investments in these areas.
Stewardship and Transition
28 The insurance coverage business can be a sizeable investor, accounting for US$35 trillion
- According to a BlackRock examine, 95% of international insurers consider that local weather threat is funding threat
Source: Blackrock’s tenth Annual Global Insurance Report, November 2021 . - Insurance traders are more and more embedding sustainability of their funding processes and methods, and additionally reallocating current property to sustainable investments to generate higher threat adjusted returns.
29 Singapore is creating deep experience and capabilities in sustainable and local weather investing, with a robust deal with use circumstances for Asia. We encourage the insurance coverage and monetary companies eco-system to faucet on our sustainable finance centres of excellence, such because the Singapore Green Finance Centre, and the Sustainable and Green Finance Institute, both for coaching in sustainable investing, or to co-create analysis on sustainable funding approaches.
Enablers for the Future
30 In this period of nice change and disruption, it’s maybe comforting that the enablers for fulfillment haven’t considerably modified. I shared earlier on efforts to sort out pandemic and local weather dangers, and if we glance throughout these efforts, the frequent enablers might be distilled to 3 elements – knowledge, partnerships, and capabilities.
31 The challenges we face in these threat areas are vital, and we are going to want a collective effort to develop and strengthen these enablers and assist resilience constructing. There are already some promising initiatives and efforts:
- I discussed GAIP earlier. It is an effective instance of how business companions, academia and regulators can come collectively to sort out key structural dangers dealing with the area, contributing funding and experience.
- MAS can be working with the business on Project Greenprint, a sequence of interoperable knowledge platforms which can handle sustainability knowledge wants.
32 Finally, I want to emphasise that at the guts of constructing capabilities, is robust human capital. This consists of rising a pipeline of Asia-savvy monetary sector expertise with abilities in rising areas similar to massive knowledge, synthetic intelligence, and sustainability.
- We should proceed to groom younger expertise for management roles within the insurance coverage and threat administration business.
- The Insurance Management Associate Program (iMAP) presents latest graduates an accelerated however complete pathway into this dynamic business via a structured 24-month profession improvement programme. The programme consists of coaching modules, mentoring by senior managers, purposeful rotations, skilled certifications awarded by the Singapore College of Insurance (SCI), and an expert insurance coverage designation awarded by The Chartered Insurance Institute (CII).
Opportunities Admist Headwinds
33 With knowledge, partnerships and capabilities as bedrocks, at the same time as companies and economies within the area face headwinds from pandemic insecurity, the local weather threat problem, provide chain threat and dangers from geopolitical tensions, the prize is ours to lose. Asia stays the important thing driver of future international financial progress, given its sound financial fundamentals, comparatively younger demographics and rising wealth.
34 Risks are threats, but in addition carry alternatives. Singapore is dedicated to supporting resilience constructing and enabling the area to ship on its financial and social promise. The finance and insurance coverage sector is a key companion in these efforts. Let us proceed to work collectively and ship a stronger, extra sustainable future.