This reduces the need for private and public borrowing following a natural catastrophe. Public and private sectors each has its role to play in increasing insurance penetration 8. The responsibility of ensuring adequate insurance coverage does not reside solely with the governments. Individuals and businesses, too, should have vested interests to ensure that their respective exposures to natural catastrophe risks are sufficiently mitigated and insured. 9. However, increasing insurance penetration is certainly not without its challenges, and here I will highlight three: (i)  Firstly, the lack of awareness of natural catastrophe risk and solutions amongst individuals, businesses and governments; which can go some way to explain the lack of appetite for catastrophe risk transfer solutions in Asia. This is where I think the insurance industry can play a proactive role in raising awareness, through lending expertise and offering risk management advice, engaging governments and organizations in regional collaborative efforts, ,and through industry conferences such as the ICRM Symposium. (ii)  Secondly, a lack of quality Asian catastrophe risk data, which impedes the industry’s ability to conduct robust risk assessments, modeling and underwriting for the region. In response to the importance of quality quantification of catastrophe risk in the region, we have seen many notable efforts being undertaken in various quarters. 4  “Loyd’s Global Underinsurance Report, October 2012”. 5  “Peter, Dahlen, Saxena (2012), ‘Unmitigated disasters? New evidence on the macroeconomic cost of natural catastrophes’”.
In light of Asia’s widening protection gap, governments would need to shift away from retaining risks, and transfer a larger proportion of risks to the insurance industry, in order to increase their national resilience against natural disasters. Instead of tapping on ex-post disaster risk financing options such as government budgets, public debt issuances and international donations, it is increasingly important for economies in the region to pursue ex-ante risk financing solutions to finance natural catastrophe losses. 6. Amongst the various risk financing solutions, insurance in particular, has been found to exert a positive effect in mitigating financial consequences of a natural catastrophe event. A study on the macroeconomic costs of natural catastrophes4 has shown that an increase in insurance penetration by 1 percentage point can lower the cost borne by taxpayers by approximately 22 percent. It has also been found that with adequate insurance coverage, economic activity returned to pre-catastrophe levels long before reconstruction was completed. 7. Specifically, insurance can lower the fiscal impact of natural catastrophes on governments in two ways5: (i)  Firstly, it has a preventative effect by providing price signals, which in turn create incentives for the insured to undertake physical risk prevention measures. This reduces their physical vulnerability to natural hazards, and can help to avoid more costly damages in a loss event. (ii)  Secondly, it has a loss mitigation effect by providing prompt financial relief to support immediate reconstruction efforts, which will help to moderate further indirect losses, such as from business interruption.