At the Singapore International Reinsurance Conference (SIRC) 2021, Mr Lawrence Wong, Minister for Finance and Deputy Chairman, MAS spoke on how the insurance industry can support the region’s economies in seizing opportunities in Asia in two transformative areas – climate change and digitalisation.
Speech by Deputy Prime Minister, Coordinating Minister for Economic Policies and Minister for Finance, Mr Heng Swee Keat, at the SIRC 2020 Re-Mind on 2 November 2020
1. I am delighted to launch the Singapore International Reinsurance Conference 2020 virtual event. This is the first time that the Conference is held virtually – a wise insurance as COVID-19 is still raging around the world.
Resilience in a Post-COVID World
2. The effects of the pandemic are far-reaching. COVID-19 has turned into a global crisis on the healthcare, economic and social fronts. More than a million lives have been lost, and the world is facing its worst economic recession since the Great Depression. The path to full recovery will be long and uncertain. COVID-19 has underscored how little we know about the scale, complexity and inter-connectedness of risks. The next pandemic – Disease X – will not be an if but when.
3. Rebuilding from this crisis will put a significant strain on resources. Many countries rolled out large stimulus packages to cushion their businesses and households from the brunt of COVID 19. Much of these were funded through borrowings. The cost of rebuilding will further add to public debt. As we seek to build back better from this crisis, we must take risk management even more seriously, and seek to build up our resilience to cope with future shocks.
4. This is especially true in Asia. This region has experienced rapid economic growth over the last few decades, which has improved the lives of billions of people and lifted many out of poverty. Asia’s growth potential remains strong, but continued growth will require greater protection against large-scale systemic risks.
Role of Insurance in Building Risk Resilience
5. Insurance can play a pivotal role in strengthening risk resilience as the world rebuilds from COVID-19. Despite its critical role, there remains a wide protection gap in Asia.
a. As Asia grows, more lives, wealth and assets will be at stake. But with growing urbanisation and greater connectivity, the scale and complexity of risks have also grown. Yet, Asia remains under-insured.
b. For instance, since 1990, Asia has accounted for about half of the global economic losses from natural disasters
6. The large protection gap in Asia is partly due to the lack of quality data and robust risk models to quantify exposure to natural catastrophes, infectious diseases and other emerging risks. The other reason is that governments and companies under-appreciate these risks.
7. If there is a silver lining, COVID-19 has raised awareness of future risks and provided greater impetus to close the protection gap. I hope the insurance industry can build on this impetus, to transform the industry by riding on two shifts - digital transformation and public-private partnerships. Let me elaborate.
8. The first shift is in digital transformation. The insurance industry is still largely a paper-based and face-to-face industry.
a. COVID-19 has accelerated digitalisation. Companies have to digitalise their work processes and adapt to working remotely. Clients are now going online to purchase new insurance and file their claims.
b. Some insurers have a head start. For instance, Singapore Life, our homegrown life insurer, is a fully digital insurer that is able to underwrite, issue policies and process claims online.
9. The potential for digital transformation goes much deeper.
a. Harnessing data from the end-to-end digitalisation of supply chains, satellite imagery and social media will provide a more granular appreciation of economic and risk exposure.
b. With IoT, accurate and timely data feed and blockchain technology, risk events can be tracked in real time. Claim payouts can in fact be triggered automatically if pre-defined conditions – such as a flight delay or flooding – are triggered.
c. The application of AI and big data will lead to more robust risk models and can also be applied ex-ante to mitigate risk and strengthen resilience.
d. These advancements have also opened up many new possibilities for insurers, across the full value chain.
10. The second shift is in the insurance landscape is to harness public-private partnerships.
a. The financing gap for large-scale systemic risks is big. This is due to highly correlated exposures across countries and industries, which would trigger claims from a large number of policyholders simultaneously. The ability of insurers to pool and diversify these exposures, while providing broad coverage at lower costs, is limited.
b. To address large-scale systemic risks effectively, the public and private sectors must come together to develop meaningful, effective and scalable risk-sharing solutions.
c. In the course of working together, insurers and regulators can also learn from each other. Such partnerships can eventually lead to better legal and regulatory frameworks to facilitate the deployment of disaster risk financing solutions.
11. This conference is most timely in bringing insurers and stakeholders together. I thank the Singapore Reinsurers’ Association and Swiss Re for putting this virtual event together in the midst of a global crisis.
a. I am glad that the themes of digital transformation and partnerships will be explored at the conference over the next few days.
b. I would also like to congratulate the Singapore Reinsurers’ Association on the launch of their “Parametric Risk Transfer Solutions” at this conference, which will bring greater awareness of the role of parametric risk transfer solutions in complementing traditional insurance products
Global Asia Insurance Partnership
12. To emerge stronger from this crisis, Asia can benefit from stronger partnerships to develop better risk management and spur new insurance innovations and solutions.
13. Today, I am happy to announce the launch of the Global-Asia Insurance Partnership, or GAIP, in short. This platform is a tripartite partnership between the global insurance industry, regulators and academia. Through GAIP, we aim to produce actionable research insights, develop policy recommendations, and co-create innovative solutions for the region. Let me highlight three key features.
a. First, GAIP will be a Living Lab to incubate new risk financing solutions for emerging risks in Asia, with a focus on riding the digital revolution and harnessing other new technologies.
b. Second, it will also be a Policy Think Tank supporting Asian insurance regulators and policy makers. We hope to expand insurance coverage for long-term needs such as infrastructure, promote the use of technology and data in insurance, and facilitate global dialogue on strategic industry issues.
c. Third, GAIP will have a strong emphasis on talent development. This will build a strong pipeline of insurers with new skills in areas such as big data and AI, and position the industry for the future as jobs are being reshaped by technology.
14. I thank the consortium of industry partners, regulators, academia and other affiliate partners
15. We are also privileged to have Mr Yoshihiro Kawai, the former Secretary General of the International Association of Insurance Supervisors, as the inaugural chairman of GAIP.
16. GAIP is expected to commence work in January next year. There are many structural protection gaps facing Asia, but pandemic risk and climate risk are two critical areas that demand our immediate and collective attention.
17. The initial focus of GAIP will therefore include these two strategic risks. I look forward to the good work of this consortium, and welcome more of you to join this meaningful initiative.
18. As Asia continues to grow, new risks will emerge. COVID 19 has provided a timely reminder on the importance of resilience and risk management.
19. Behind every crisis is an opportunity – I encourage all of you to make the best use of this conference, to brainstorm and share ideas, and work together to create a more resilient and better future for all of us.
20. I wish you every success and a fruitful conference.
21. Thank you.