Opening Remarks by Guest-of-Honour Mr Heng Swee Keat, Managing Director, Monetary Authority of Singapore, at the International Symposium on Catastrophe Risk Management
Dr Su Guaning, President NTU,
Prof Haresh Shah,
Prof Bertil Andersson,
Prof TC Pan, Ladies and Gentlemen
1 Good morning! I am honoured to address this prominent gathering of experts in this inaugural international symposium on catastrophe risk management. I am also delighted to join you in the launch of the Institute of Catastrophe Risk Management (“ICRM”), which will be among the first in Asia to focus on this area.
Threat of increasing catastrophe risks globally and in Asia
2 Natural catastrophes cause massive destruction to lives and property, and inflict much human sufferings. Managing such risks is difficult as it is hard to predict with accuracy the frequency, the timing or the scale of such events. The losses of lives can never be replaced, while the recovery and rebuilding efforts after the disaster can take years. The recent earthquake in Haiti, the Sichuan earthquake, cyclone Nargis in Myanmar and the Asian Tsunami attest to the destructive powers of such events. In 2008, it was estimated that globally, at least 240,000 lives were lost and more than US$260 billion of economic losses were incurred due to natural and man-made disasters. Thankfully, the preliminary estimates of 2009 losses are much less severe as there were less extreme catastrophe events.
3 However, some recent studies indicate that occurrences of natural catastrophes are on the rise. A recent estimate shows that the number of natural catastrophes doubled and insured losses increased nearly seven-fold between the 1960s and the 1990s. Another study shows that the average number of major weather-related catastrophes such as windstorms and floods is now three times as high as in the early 1980s.
4 Some scientists think that climate change may have contributed to this trend. The Intergovernmental Panel of Climate Change, for instance, noted that climate change can increase both the frequency and intensity of extreme weather events such as storms and torrential rain. Global warming could lead to rising sea levels, thereby increasing the risk of coastal flooding.
Enhancing capabilities in catastrophe risk management in Asia
5 Asia’s geographical position makes it vulnerable to natural catastrophes. Many countries sit on the Pacific Rim of Fire and are prone to earthquakes, tsunami and volcanic eruptions. Several countries are in the paths of hurricanes. Often, erratic monsoons cause either droughts or extensive flooding, especially at the coastal regions.
6 Yet, despite these vulnerabilities, many Asian countries are not well prepared to deal with these. Catastrophe risk insurance is very low. For example, it is estimated to be under 0.5% in China and India. The Asian Development Bank also points out that most countries react to catastrophes through emergency and relief efforts, rather than embark on a more holistic preparation for contingencies. But geography need not be destiny. Japan, which is prone to earthquake and hurricanes, is an excellent example of a country which has taken extensive effort to mitigate the impact of natural catastrophes.
7 I am hopeful that in the coming years, catastrophe risk management, as well the management of non-traditional risks such as pandemics and terrorism, will feature more prominently in the agenda of policymakers and business leaders. Public awareness and willingness to act will increase. Asia’s growth will mean that people will be more motivated to act as they have more to lose from such events. At the same time, they can also better afford to set aside resources to deal with such contingencies. Rapid urbanization will lead to an even greater concentration of lives and economic resources in major cities. For instance, Manila alone contributes to about 25% of Philippines’ GDP and this is projected to increase to 28% by 2020. In fact, 11 of the 15 megacities cities in the world today are in Asia, and this trend of urbanization is set to continue. Managing catastrophe risks will be a major task in the management of cities.
8 However, mitigating the impact of catastrophes requires multi-year efforts from multiple stakeholders – policymakers, academics, the general public, NGOs and business leaders, especially those in the insurance and re-insurance industry. A holistic catastrophe risk management system needs to include measures that mitigate risks and reduce impact, preparations for emergency response when disaster strikes, and recovery and reconstruction programmes after the event. Regional cooperation will often be necessary.
9 The foundation of such a holistic risk management programme is a deep understanding of the vulnerabilities of specific regions and the nature and scale of potential damages. Such understanding, derived from extensive research and detailed data, enables creative and cost-effective solutions to be devised. The design of such solutions will invariably be multi-disciplinary, involving public policy, engineering and structural designs, and public education. In particular, economic and financial risk management will be an integral part of this effort to mitigate the economic impact and to provide funding for the rebuilding of physical and economic infrastructure.
Role of ICRM
10 In this regard, the Institute for Catastrophe Risk Management can play two very important roles. First, by undertaking research and collecting data on the vulnerabilities and the potential damages, ICRM can help stakeholders make better assessment of the problems and potential solutions. ICRM can help to encourage regional collaboration, and to improve data standards, so that timely, accurate and granular data can be collected. ICRM can build on the progress that some countries have made - Japan has extensive data, while China’s Insurance Regulatory Commission recently published its first standards for catastrophe insurance and CRESTA developed new and more specific zones for China.
11 Second, ICRM can act as a catalyst for the design of policies and financial solutions in the region. By organizing symposiums such as this, you can bring together key stakeholders from different countries and disciplines to share knowledge and explore solutions. NTU’s multi-disciplinary focus and close links with industry, as well as your extensive regional and international networks, will serve ICRM well in this endeavour.
Role of Insurance Industry
12 Let me touch on the role of the insurance and re-insurance industry. First, the global and regional players in the re-insurance industry including brokers have deep expertise in risk modeling and risk management. Many of these firms have operated for many years in advanced economies and have accumulated extensive experience. The industry would thus be in a good position to lend their expertise to provide advice on catastrophe risk management.
13 Indeed, a 2006 survey by the Economist Intelligence Unit showed that risk consultants and insurance companies are the top two external bodies which the respondents would approach for advice in their catastrophe risk planning.
14 The second role for the insurance industry is to develop catastrophe risk financing solutions. There are various forms of catastrophe risk finance, including domestic budgetary funding, insurance, catastrophe bonds and country risk pools. Given that Asian markets are at varying stages of development, customised and cost-effective solutions would be necessary to address the needs of different countries. A good example is the first worldwide micro-insurance flood product developed for Jakarta last year. It offered a product to insure against the direct economic losses and social risks caused by severe flooding .
15 There are many international insurers, reinsurers and brokers in Singapore, many of whom are here today at this event, who have deep expertise at the global level to develop catastrophe risk solutions. Some of them are already building up their capabilities in this region. Let me take this opportunity to encourage the industry to dedicate more resources to Asia and to play a larger role in helping the region manage catastrophe risks. In this regard, I hope that the ICRM will be a focal point for greater collaboration between the private sector, public sector and academia.
16 In conclusion, managing catastrophe risks will become more challenging and more important in the coming years for the Asian region. Singapore, with its connectivity to the global community and its location in Asia, can be a key node for risk management. The setting up of ICRM is timely. ICRM can be a depository of knowledge and data on catastrophe risk management in Asia and be a focal point for regional collaboration and public-private partnerships.
17 On this note, I extend my heartiest congratulations and best wishes to NTU and ICRM on this launch, and wish you success in the years ahead. To all the speakers and participants of the Symposium, I wish you a fruitful discussion.
18 Thank you.