Speech by Mr Heng Swee Keat, Minister for Finance, and MAS’ Board Member, at the 15th Singapore International Reinsurance Conference on 29 October 2018
Mr Marc Haushofer,
Mr Richard Austen,
Mr Sivam Subramaniam,
Ladies and gentlemen,
1 Good afternoon! To our delegates from overseas, a warm welcome to Singapore. I hope you will have good discussions with the delegates that are gathered in this place.
2 Global growth has been resilient this year, despite ongoing trade tensions and monetary policy normalisation in the US. Nevertheless, the uncertainty is dampening the global recovery, and bringing in new risks.
3 Asia’s economies are facing some headwinds in the near term, but the longer-term prospects remain positive. The region appears to be on the cusp of a sustained upswing in household spending due to structural forces, including urbanisation and a rising middle class. Asia is expected to account for nearly 900 million of the next one billion of new entrants into the middle class1. It is projected to generate more than half of global middle-class spending by 20302.
4 ASEAN’s long-term growth story remains positive, anchored by sound fundamentals. ASEAN is currently the sixth largest economy in the world, with a combined GDP of US$2.55 trillion. By 2030, the combined GDP of ASEAN states is projected to be the fourth-largest in the world, after the US, China and the European Union3.
5 ASEAN has and will continue to deepen regional integration as guided by the ASEAN Economic Community (AEC) 2025 Blueprint. As Chair of ASEAN this year, Singapore has set out 3 goals to “sustain growth”, “boost resilience” and “foster innovation”. I am pleased that we have made very good progress in all three areas.
6 Today, let me focus on the goal of resilience, which is key to sustaining growth and protecting our people’s well-being. ASEAN’s efforts to strengthen financial resilience through the Chiang Mai Initiative Multilateralisation (CMIM) is well-known. But what is less well known is ASEAN’s efforts to enhance its resilience against natural disasters and cyber threats.
7 Why is this important? ASEAN is vulnerable to both traditional natural catastrophe risks and modern cyber risks. Within ASEAN, there is scope for better risk pooling, for insurance to play a greater role in mitigating the financial shocks of unexpected disasters or deliberate cyber-attacks. There is also scope for increasing the speed of recovery.
8 Let me share how we are working with the insurance industry to address these risks.
Closing the Natural Catastrophe Protection Gap
9 First, in closing the natural catastrophe protection gap.
10 Southeast Asia remains vulnerable to natural disasters4 such as typhoons, earthquakes and floods, the impact of which would be exacerbated by climate change. Yet insurance coverage against such natural catastrophes in our region has not kept pace with economic development. There is a large protection gap which will grow wider.
11 To illustrate, from 1980 to 2016, Southeast Asia suffered US$150 billion in economic losses from natural disasters. Of this, only 10-20% of the losses were insured, compared with typical insurance coverage of around 40% in developed markets5. This means that individuals, businesses, and governments have to bear not only the heartbreaks from the loss of lives and neighbourhoods, but also the financial burden when a disaster strikes. This is not sustainable in the long term, and can set back the economic and social progress achieved by ASEAN states.
12 To increase insurance cover and boost regional disaster resilience, ASEAN member states decided to come together to develop ex-ante risk management initiatives. We have made progress in three areas that will strengthen disaster risk resilience in the region.
13 First, we agreed to liberalise insurance services under the ASEAN Insurance Integration Framework. This year, eight out of ten ASEAN member states have committed to liberalising cross-border Marine, Aviation & Goods-in-Transit insurance, as well catastrophe reinsurance. Such cross-border provision of insurance solutions is an important first step in maximising the benefits of insurance, by facilitating a wider diversification of risks to allow more cost-effective cover, and plugging capacity gaps in domestic markets.
14 Second, the ASEAN Finance Ministers endorsed Phase 2 of the ASEAN Disaster Risk Financing and Insurance, or ADRFI, initiative. ADRFI was first established in 2016 to serve as the central platform to coordinate ASEAN efforts in developing and implementing disaster risk solutions. In Phase 1, a low-resolution historical database of select ASEAN countries was developed for earthquake and typhoon events. In Phase 2, ADRFI will focus on:
a. Improving data required for assessing disaster risk exposure and financing solutions;
b. Enhancing knowledge on disaster financing solutions through capacity building; and
c. Harnessing risk advisory expertise to provide advice and design innovative risk financing solutions.
15 Together, the work done in both phases will enhance the robustness of data standards and models, and build a pipeline of risk financing solutions that can be deployed in ASEAN and Asia. With good data, policymakers and regulators can make better decisions on different disaster risk management strategies and risk financing tools. Capacity building efforts under ADRFI will also equip ASEAN member states with practical tools and knowledge on disaster risk financing solutions.
16 Third, the ASEAN+3 Finance Ministers have endorsed the Southeast Asia Disaster Risk Insurance Facility, or SEADRIF. Supported by the World Bank and in partnership with Japan, SEADRIF will start with a flood risk pool involving Laos, Myanmar, and potentially Cambodia. It will provide ex-ante climate and disaster risk and insurance financing solutions for these countries, and is targeted to be established by mid-2019. Such disaster risk solutions will facilitate immediate liquidity financing so that countries can receive help promptly. These solutions will also reduce disruptions to national budgets and reliance on humanitarian assistance which can take time or is uncertain.
17 Singapore is honoured to host SEADRIF, and will be supporting SEADRIF through providing technical capacity building, reinsurance capacity, structuring and modelling support, and financial support.
18 Taken together, the ASEAN Insurance Integration Framework, ADRFI and SEADRIF are promising developments to narrow the natural catastrophe protection gap in Southeast Asia, and fortify ASEAN’s resilience against economic losses from natural disasters.
Enhancing Cyber Resilience
19 Let me now touch on enhancing cyber resilience.
20 Cyber threats are becoming more pervasive. Cybercrime was estimated to cost the global economy approximately US$3 trillion in 2015, and this is expected to double to US$6 trillion by 20216. Asia appears to be the world’s most targeted area for cyberattacks. Hackers are 80% more likely to target organisations in Asia7, yet Asian organisations take 1.7 times longer than the global average to discover cyber breaches8. More than 60% of Asian companies do not have proper cyber threat monitoring systems9. Clearly, more needs to be done to strengthen Asia’s and ASEAN’s cyber threat resilience.
21 Whether in Asia or around the world, as digital technologies become more widely integrated into our economy and society, cyber threats will increase, and the cost of attacks multiply. We need to invest in cybersecurity, to prevent and deter attacks, and we need to mitigate the consequences of attacks, through better risk pooling. We need to work together with all stakeholders, in our country, and with the international community, to coordinate action and assist one another.
22 To contribute to the ASEAN region’s capacity to better deal with emerging global cyber threats, Singapore announced the establishment of an ASEAN-Singapore Cybersecurity Centre of Excellence last month. The centre will build up ASEAN member states’ cyber strategy development, legislation and research capabilities, and provide virtual cyber defence training.
23 On the insurance front, insurance coverage of cyber risks remains very low globally, due to a lack of historical data and intelligence to support risk assessment, underwriting and pricing. As a result, most policies have too many exclusions.
24 Against this backdrop, Singapore launched the Cyber Risk Management Project in 2016. This provides a cyber-risk assessment framework to support robust underwriting and pricing of cyber risks. The project has now completed its second year of running and is on track to fostering an efficient cyber risk insurance market place through a few things:
a. First, developing a standardised taxonomy of cyber incidents;
b. Second, creating a cyber-event loss database; and
c. And third, benchmarking of cyber loss models to support actuarial pricing.
25 Today, I am pleased to announce the formation of the world’s first commercial cyber risk pool in Singapore. Initiated in collaboration with the Singapore Reinsurers’ Association and cyber specialist Peter Hacker, the pool will commit up to US$1bn in capacity, and bring together both traditional insurance and insurance-linked securities markets to provide bespoke cyber coverage. To date, twenty insurance firms have indicated their interest to participate in this pool, which would allow corporates in ASEAN and Asia to be protected against cyber-related losses.
26 The cyber risk pool reflects Singapore’s standing as a specialty insurance hub, and our commitment to driving forward-looking insurance solutions to tackle new and emerging risks. I encourage you to consider participating in this joint effort, and to work together to develop better risk models to price cyber risks appropriately. With proper pricing, more corporates will be encouraged to take-up cyber risk protection.
Global-Asia Insurance Partnership
27 What I have outlined so far are measures taken in response to the challenges posed to us today. These, on their own, are useful. To make a greater impact, we need to think further ahead, and do a strategic review. This will enable all of us, in ASEAN and elsewhere, to develop pre-emptive solutions to tackle long-term challenges.
28 To drive a strategic response, we will need an institutionalised platform to coordinate cross-cutting issues across the different industry segments within and outside the insurance sector, as well as draw synergies across industry, policymakers and academia. We need to collectively pool expertise and co-create innovative solutions in pertinent issues such as digital innovation, talent and government policies.
29 To build this institutional platform, and in keeping with this year’s ASEAN theme of embracing the future towards a resilient and innovative ASEAN community, I am pleased to announce the setting up of a new centre of excellence – the Global-Asia Insurance Partnership. This centre of excellence aims to be a focal point for the global insurance industry, regulators and academia, to collaborate and deepen capabilities in risk management and insurance. This will be done through a three-pronged approach of:
a. a living lab to develop solutions for new risks;
b. a regulatory think-tank; and
c. a talent development pillar.
30 The first prong is a Living Lab to incubate innovative solutions for new and nascent risks, such as supply chain risks, and risks arising from Industry 4.0. Much has been done by individual insurers which have set up innovation labs in Singapore and embarked on initiatives to better understand these emerging risks. The Living Lab is not meant to duplicate these efforts, but instead, seeks to tackle market-wide issues that cannot be dealt with by a single company. The Living Lab will be well-placed to draw on subject matter expertise from academia and industry, to develop collective capabilities in new and emerging risks.
31 The second prong is a regulatory think-tank that will conduct independent research to support policy decisions in assessing, quantifying, and mitigating emerging risks in the insurance industry. The research needs are wide-ranging. For instance, the think-tank could develop leading macro-prudential indicators for the insurance sector, conduct research on regulatory treatment for longevity products, and provide feedback on policy-making in the use of new technology in insurance, such as blockchain.
32 And third, a talent development effort that will train a pipeline of insurance talents with cutting-edge skills in emerging areas like big data and artificial intelligence. This is aligned with Singapore’s broader efforts to upskill and reskill our workforce to remain relevant and be future-ready as jobs are reshaped by technology.
33 The Monetary Authority of Singapore is partnering with Nanyang Technological University (NTU) on this initiative, in recognition of the latter’s established strengths in actuarial science, insurance, risk management, and research. We are also privileged to have Mr Yoshihiro Kawai, the former Secretary General of the International Association of Insurance Supervisors, play a key role in the Partnership, in particular, to lead the regulatory think tank effort. I strongly encourage all of you to join this Global-Asia Insurance Partnership initiative as an industry partner.
34 As Asia continues to transform into a knowledge-centred, technology-based and innovation-driven economy, new risks will continue to emerge. This presents new opportunities for the insurance sector to create value. At the same time, new solutions are needed to address age-old catastrophe risks. I am confident that more can be done, and will be done, with sustained commitment and partnership between the MAS and all of you here.
35 The presence of so many of you here – the key stakeholders in the insurance industry, from ASEAN, Asia and the Global community, shows your commitment to share and work together, to build a more innovative and resilient world, where we can pursue economic growth and development, and continue to make lives better around the world.
36 Thank you very much for your commitment ahead.
1 Source: Research by Brookings Institute
2 Source: Research by Brookings Institute
3 Source: Investing in ASEAN 2013|2014
4 Based on a UN Economic and Social Commission for Asia and the Pacific (ESCAP) report: During a 10-year period from 2004-2013, ASEAN accounted for about 41% of global natural disasters and 50% of disaster related fatalities.
5 Source: Swiss Re data based on study of Southeast Asia natural catastrophes from 1980-2016.
7 Source: BBC News 2016
8 Source: Mandiant 2017
9 Source: Marsh & McLennan, 2017