Peak Re: Bridging the protection gap in emerging markets

Large and getting larger: Emerging Asia’s protection gaps

The prevalence of under-insurance and non-insurance in emerging markets is well-documented.[1] The proverbial protection gap persists across different risks, from property to health and mortality, variously also extending to include longevity and liability. There are many reasons underpinning the large protection gap and low insurance penetration in emerging markets, which can be summarised as the “Triple-A Conundrum” – i.e. lack of Accessibility, Affordability and Awareness.[2] These are considered key impediments to deepen insurance penetration in emerging markets including those in the Asia-Pacific region.

Empirical research on protection gaps has been stymied by a lack of data and standard definitions. In fact, different protection gaps are measured differently. For the property including natural catastrophe (nat cat) protection gap, it is measured in most cases as the difference between economic and insured losses over a period.[3] Mortality protection gap is the short-fall in household financial assets to sustain the living of surviving family members, in case of pre-mature death of the household breadwinner. The more challenging health protection gap is sometimes gauged by out-of-pocket expenses, while some estimates also consider the risk of catastrophic medical bills and non-treatment because of affordability and other reasons.

Notwithstanding the capriciousness of definitions and a dearth of data, empirical research is pointing to large protection gaps in emerging markets.[4] The gaps are of particular concern in emerging Asia, due to the region’s large population and fast economic growth. For instance, it is estimated that emerging Asia accounted for around 40% of the global health and mortality protection gaps, and some 20% of the nat cat protection gap.[5] The gaps are also widening. With property and nat cat protection gap, the rise in asset values particularly in disaster-prone coastal regions has outpaced the growth of insurance cover. This could have aggravated by increasing frequency and severity of calamities. Life-style considerations, rising medical inflation and aging population are some of the factors behind a widening health and mortality protection gap in emerging Asia. While the region has witnessed sustained strong life premium growth over the past decades, much of which is believed to be savings-type insurance policies.

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Cat bonds: Structurally diversifying & primed for growth, says Neuberger Berman

FULL ORIGINAL PUBLICATION HERE. COPY OF THE FULL WHITE PAPER HERE.

Catastrophe bonds and insurance-linked securities are one of the “very few genuinely, structurally diversifying asset classes,” according to the Neuberger Berman Insurance-Linked Strategies team, who give the asset class a positive outlook for 2021.

Writing in a white paper, the Insurance-Linked Strategies team of global asset manager Neuberger Berman explain that they also believe catastrophe bonds remain attractively valued and as an asset class is set to continue growing.

Catastrophe bonds, among the ILS universe, are particularly attractive to institutional investors, given they enable access to the returns of “a fundamentally uncorrelated asset class (natural catastrophe risk) in a form that is typically more liquid than most reinsurance contracts and vehicles,” the Neuberger Berman ILS team states.

Catastrophe protection gap hit 64% in 2020, $171bn goes uninsured: Aon

FULL ORIGINAL PUBLICATION HERE. AON’S FULL CATASTROPHE REPORT HERE.

The global catastrophe protection gap reached 64% in 2020 as roughly $171 billion of natural catastrophe and severe weather losses were not covered by insurance and reinsurance, one of the largest brokers Aon has said.

Aon’s latest annual catastrophe report highlights climate influences on a significant number of impactful events in 2020 and the brokers’ CEO Greg Case calls for organisations to ensure they are protected against the global risk of concurrent events.

Aon’s report includes 416 natural catastrophe and severe weather events from 2020, which the broker estimates drove economic losses of US $268 billion, some 8% above the average annual losses for this century.

Tre Hapa për të Ndihmuar Shqipërinë për të Përballuar Ndikimet Financiare të Shkaktuara nga Fatkeqësitë dhe Krizat

PUBLIKIMI I PLOT ORIGJINAL KTU

Në vitin 2019, Shqipëria u përball me një seri tërmetesh, ndër të cilët edhe një me magnitudë të lartë; më pas, mes përpjekjeve për rindërtim në vitin 2020, u godit edhe nga pandemia COVID-19. E përballur me nevojat e shumta në rritje, mbështetja e qeverisë shqiptare shkoi për të varfërit dhe personat e prekur nga fatkeqësitë dhe krizat, përfshirë këtu edhe bizneset. Për ta realizuar këtë, ajo shfrytëzoi rezervat fiskale, rishpërndau buxhetet për përparësitë urgjente dhe u mbështet tek ndihma e jashtme. Shumë nga këto masa u ndërmorën në bazë të nevojës.

Në shtator 2020, Banka Botërore së bashku me Ministrinë e Financave dhe Ekonomisë,  kreu vlerësimin diagnostikues në lidhje me financimin e riskut të fatkeqësive në Shqipëri.[1] Kjo përpjekje kishte për qëllim identifikimin e mangësive të financimit të mekanizmave për gatishmërinë financiare të vendit në rast fatkeqësish dhe rekomandimin e mënyrave për përmirësimin e tyre.

Menaxhimi i riskut të fatkeqësive është ndër përparësitë kryesore të politikave në Republikën e Shqipërisë dhe, pak kohë para tërmetit, qeveria shqiptare kreu edhe një seri reformash në këtë drejtim, si për shembull: miratimi i Ligjit të ri për Mbrojtjen Civile, racionalizimi i kornizave institucionale, decentralizimi i funksioneve që aktivizohen pas fatkeqësive dhe vënia në dispozicion e strukturave të nevojshme për fondet e emergjencës në nivel vendor dhe në nivel ministrie të linjës.

Three Steps to Help Albania Withstand the Financial Impacts of Disasters and Crises

FULL ORIGINAL PUBLICATION HERE

In 2019, Albania experienced a series of earthquakes, including a major one; then, amid reconstruction efforts in 2020, it was hit by the COVID-19 pandemic. Confronting multiple increasing needs, the government of Albania supported the poor and those affected by disasters and crises, including businesses. To do so, it tapped into its fiscal reserves, reallocated budgets toward urgent priorities, and relied on external assistance. Many of these measures were ad hoc.

In September 2020, jointly with Albania’s Ministry of Finance and Economy, the World Bank completed a diagnostic of disaster risk finance in Albania[1]. This effort sought to identify financing gaps in—and recommend ways to improve—the country’s financial preparedness for disasters.

Disaster risk management is among Albania’s key policy priorities, and the Albanian government carried out a series of reforms shortly before the earthquake: for instance, it enacted a new Law on Civil Protection, streamlined institutional frameworks, decentralized post-disaster functions, and put in place structures for contingency funds at the local and line ministry level.

Where the new ILS opportunities lie – and how to access them

ORIGINAL PUBLICATION HERE. INTELLIGENT INSURER WEBSITE PUBLICATION HERE.

In a webinar hosted by Intelligent Insurer’s Re/insurance Lounge, AkinovA CEO Henri Winand and Kirill Savrassov of Phoenix CRetro explored the possibilities for ILS to expand into new geographies and lines of business.

A significant motive for bringing insurance-linked securities (ILS) to new geographies is diversification of portfolios, according to Henri Winand, founder and chief executive officer of AkinovA.

Speaking in an Intelligent Insurer Re/insurance Lounge webinar titled “New domiciles, new risks, new structures: another evolution for ILS”, he noted that while an attraction of ILS is that it is seen as uncorrelated from the capital markets, it has a disadvantage in that portfolios are largely concentrated in North America, and to some extent in Asia.

Briefing – ILS: resilience despite the thrills

FULL ORIGINAL PUBLICATION HERE

Institutional investors have piled into insurance-linked securities (ILS) with the goal of adding reliable returns and a touch of diversification to their investment strategies. 

  • A series of natural catastrophes has made investors more aware of the risks embodied in insurance-linked securities
  • ILS have proven less liquid than expected in the wake of these disasters
  • Catastrophe bonds are the most traditional and most liquid ILS instrument

A series of natural catastrophes that hit the world in the past three years has taught them that they have incorporated the potential for large losses into their portfolios.

A relatively young asset class, ILS investments have been put to test since the summer of 2017, as a destructive series of hurricanes, earthquakes, floods and wildfires shot insurance losses through the roof. They also affected investments that, to some extent, constitute a bet that catastrophic events will not happen, or at least will not be too severe in terms of property destruction.

The Case for Deploying Enterprise Architecture in ILS

FULL ORIGINAL PUBLICATION HERE

Does innovation receive the attention it deserves in your company? Are you able to scale your business? Do you have business ideas but don’t see how IT can support or enable them? If so, this article is definitely for you!

ILS managers are technology companies that happen to work at the intersection of (re)insurance and capital markets. Such a statement is increasingly adopted by companies seeing innovation as a key driver of their comparative advantage. Whether this involves creating new business products or business models, innovation and technology must be central to strategy and managed as a fundamental capability.

To gain such a competitive edge, ILS managers need a front-footed, strategically aligned innovation and technology organization. In reality, however, many lack such an organization, and experience significant challenges in their IT architecture that detract from the desired strategy instead of reinforcing or even shaping it. What is needed is the capability to manage the company’s IT assets and drive the discovery and adoption of innovative solutions that advance the business strategy.

Academics call on re/insurers to abandon cat models relying on historical data: Convergence 2020

ORIGINAL PUBLICATION HERE

A panel of academics at ILS Bermuda’s Convergence 2020 conference has slammed the re/insurance industry’s catastrophe prediction models as not fit for purpose.

Cat models that use historical inputs are based on “short and incomplete” data that would be misleading, even if the data were comprehensive, because of the impact of climate change, said Professor Kerry Emanuel, professor of atmospheric science at the Massachusetts Institute of Technology.

Speaking on a panel titled The Effects of Climate Change on Wind, Flood & the Earthquake Zombie Hypothesis, that was chaired by Samantha Medlock, a senior counsel who sits on the Climate Crisis Select Committee for the US House of Representatives, Emanuel argued that climate data was only reliable going back as far as the 1970s.

Sovereign Parametric Catastrophe Bonds as means to address the protection gap in emerging countries

As mentioned by AON in their Weather, Climate & Catastrophe Insight: 2019  Annual Report, last year brought $232 billion of economic losses from natural disasters whereby only $71 billion was actually insured. It outlined that the world continue to face a fundamental issue of insurance gap, especially in emerging and developing countries, where losses for businesses and governments are only increasing following a decade-long rise in natural catastrophes linked to the climate change.

Protection gaps exist in both emerging and developed markets. However, with estimated by Swiss Re 35% level of catastrophe risk coverage in advanced economies versus 6% in emerging economies, the issue is far more important for the developing world, where the cost of disasters is not just measured in the deaths and injuries that they cause, but also in their long lasting economic impact on survivors and countries. Natural disasters there do not just destroy homes, factories, shops and fields; they can altogether annihilate years of economic growth, which is essential for the low and mid-income countries.