The world is changing – and far more rapidly than ever before. Asia especially is urbanizing at breathtaking speed – the United Nations estimates that well over half of its 4.5 billion population will live in cities by 2026.
Today, 31 out of the world's 47 megacities – defined as cities with at least 10 million people – are in Asia. Fifteen of them are in China.
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What's driving people to cities? Opportunity and technology. Cross-border infrastructure initiatives are facilitating access and interconnectivity, linking terrestrial and maritime routes and drawing societies closer. China and Asia's emerging markets will outpace developed markets for the foreseeable future.
These are optimistic figures. But, as with any reward, there are risks too. Global warming is causing sea levels to rise and changing precipitation patterns. Excessive rainfall, wildfires, drought, and other extreme weather events are occurring more frequently because of climate change.
Between 2014 and 2017, Asia was hit by 55 earthquakes, 217 storms and cyclones, as well as 236 cases of severe flooding, impacting 650 million people and resulting in the deaths of at least 33,000 people. Last year, Asia experienced 104 catastrophic events, accounting for a third of all catastrophic events worldwide.
The confluence of urbanization, population growth and climate change on a scale that is unprecedented in human history has resulted in an escalating impact on our societies. In 2018, total economic losses from natural catastrophes and man-made disasters globally amounted to $165 billion, but the cost to society goes beyond dollars and cents.
Devastating storms or drought hitting agriculture areas, particularly in top food producers such as China and India, threaten our food security and the livelihoods of millions of farmers and families. The race to overcome housing, food and water, as well as sanitation challenges in the aftermath of a natural disaster are epidemic time bombs.
Strength in partnerships
Swift action is needed to ensure our societies' long-term sustainability against nature's onslaught. And it takes strong collaborative action at all levels of society – governments, corporates, financial institutions, re/insurance and individuals.
Insurance only covered around half of the $165 billion losses in 2018, meaning the rest had to be covered by diverting government funds, donations, handouts and aid.
A decade after the Global Financial Crisis, the world is no more resilient to shocks. The re/insurance sector can play a crucial role, absorbing such shocks for society, and is well-capitalised to do so.
According to Swiss Re estimates, total re/insurance capacity, including alternative capital, stood at over $2 trillion at the end of last year. On the other hand, accumulated insured losses from natural catastrophes in 2017 and 2018 totalled $219 billion, just about 11% of available capacity.
A supportive policy framework strengthens private capital market solutions (such as insurance-linked securities), leverages multilateral development banks' balance sheets, and encourages sustainable investing. This is one of the keys to being more resilient to escalating costs and the impact of climate change.
The right measures help. Last year, more than 50% of insurance pay-outs were made to help impacted populations manage the fallout from torrential rains, landslides and storm surge-induced flooding.
For instance, China's Mao County is working with partners to provide the country's first county-level natural catastrophe programme, providing payouts in the event of a disaster and based on pre-agreed conditions to help in rehabilitation, relief and reconstruction efforts. Similarly, the Philippine government doubled its parametric insurance – which commits to making a payment when a triggering event occurs – to cover major typhoon and earthquake events in 25 provinces in one of the world's most disaster-prone countries.
Looking back at the events that took place in 2018, the signs are clear. A reliance on historical data to study, analyze and strategize against climate events have become insufficient. The unprecedented losses arising from Typhoon Jebi in Japan have prompted the re/insurance sector to review existing approaches in risk assessment, modelling and management.
I see this as an open invitation to the re/insurance industry to step up and spearhead change. A new approach that manages risk on both severity and frequency is needed to strengthen resilience against climate change's impact on urban societies. This includes embracing and developing technology that enhances data collection, assessment and facilitation of claims in emergencies.
Satellite imagery, drones, and automation are ready technologies in our rapidly digitalizing world that can optimise efficiency of real-time damage assessment and claims management.
As a community, the re/insurance sector has amassed immense risk knowledge and expertise. If we can embrace technology effectively, achieve wider data access and transparency, and apply deep analytics capabilities, we can make a difference in our partnerships with government and private stakeholders to strengthen the resilience of our societies.
Towards sustainable growth
Environmental degradation, overcrowding in cities, traffic congestion and increasing pollution – by-products of urbanization and the burning of fossil fuels – have sped up the pace of climate change.
Reducing greenhouse gas emissions to limit global warming while meeting the energy needs of a growing population is one of the biggest challenges to societies today – one that cannot be overcome without transitioning to more resilient, low-carbon energy systems.
A concerted move to encourage sustainable business, industries and investment can provide impetus to accelerate the transition. Through close collaboration between the private and public sectors, policymakers can establish a risk-based regulatory framework for Environmental, Social and Governance (ESG) investments and highlight the importance of ESG in the financial performance analysis.
With massive infrastructure development taking place in Asia, the opportunities are ripe to stimulate and unlock investments for low-emission, climate resilient development. Globally, infrastructure financing needs are huge. In Asia. $1.7 trillion a year is needed until 2030 if the region is to maintain its growth momentum, push its citizens over the poverty line, and respond to climate change.
Global re/insurance assets amount to approximately $30 trillion. Even a low single-digit increase can unlock a significant amount of capital for deployment into high-quality, robust infrastructure projects that advance economic development and societal resilience. A more conducive investment environment and a clear, consistent regulatory framework will be essential to encourage greater infrastructure investments.
Today, there are innovative solutions and advance technology that we can use to better understand climate change and prepare ahead. The Paris Agreement and other government initiatives are different steps galvanizing the global community across industries towards a common goal. Strong public-private partnerships will continue to be the key to a more resilient and sustainable tomorrow.