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Bangkok Post
Bangkok Post
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Seeking a flood-resilient future in SEA

The Asia-Pacific region has been plagued by large-scale natural catastrophes and consequent financial damage in recent years, with total economic losses reaching US$50bn (1.8tn baht) last year according to Munich Re's NatCat (Natural Catastrophes) Service Annual report. Yet, just approximately 17% (US$8.4bn) of those losses were insured, highlighting the large protection gap in this part of the world.

The protection gap is a particularly prominent issue for countries in Southeast Asia, which are characterised by significantly lower insurance coverage as compared to markets in the wider region, such as Australia, Japan and Korea. For Southeast Asia, in the majority of years since 1980, insured losses correspond to less than 3% of overall losses.

Furthermore, the recent rise in weather-related perils as a result of climate change poses an even greater concern, not forgetting the rapid urbanisation and economic growth that we are increasingly seeing in the region.

Southeast Asia is especially prone to floods, given that the majority of weather-related events that have hit the region since 1980 were of hydrological nature, namely flood and wet mass movement.

Notably, these accounted for over half of the overall weather-related losses (52%), resulting in some of the costliest and most catastrophic events.

For example, 2011 was the costliest year ever recorded in Southeast Asia, and was mainly driven by the 2011 Thai Floods which resulted in overall losses of US$45bn.

Other hydrological events include the floods of 2021–22 in Malaysia, 2015 in Myanmar, as well as 2007 in Indonesia.

Such economic as well as physical losses are further exacerbated by countries' preparedness to counter the potential effects of floods.

Some countries across the region also encounter tropical storms due to their proximity to the Pacific coastline, but unfortunately do not have adequate water defence strategies and resilient infrastructure in place.

The increase in the frequency and the severity of flooding events along with the accelerated urban and economic growth contributes not only to the potential increase in flood risk and loss but also makes flood modeling a challenging task.

As such, these have prompted the urgency for businesses and countries to invest in managing the impacts of floods, lest they incur more severe consequences as the effects of climate change continue to take hold.

To this end, insurance businesses play a critical role in reducing losses, analysing climate trends and mitigating flood risk, through the creation of detailed flood coverage solutions that rely on sophisticated catastrophe models.

However, traditional insurance solutions require resource-intensive claim processing, which may not always be a feasible option for the needs of rapidly changing risk landscape or developing markets.

As a result, several risk-prone urban centres in Southeast Asia, mainly consisting of small businesses and residential exposures, remain unprotected due to the lack of affordable tailored insurance solutions to cover their needs.

Innovative initiatives are needed to build recovery and resilience, while ensuring countries can effectively address flood risk. This is where parametric insurance solutions come into play.

Fast growing in popularity among many Asian economies, parametric products are innovative products that can be used to eliminate coverage gaps and ensure quick post-event liquidity though a simple and fast claims process.

Such solutions can act like business interruption insurance and offer cover where traditional insurance is not available. More importantly, it presents as an answer to cover under-protected risks and complement the traditional indemnity-based insurance.

What makes parametric products highly favoured is that the payouts are triggered on incidence rather than assessment of impact. Essentially, there is a pre-agreed payout if the parameter threshold or a trigger level is reached or exceeded, regardless of actual physical loss sustained by the insured.

Flood level triggers are one example of a parameter threshold. Local flood levels are measured by devices attached to buildings, and the pricing is based on high-resolution flood maps which provide modelled flood levels for selected fixed return periods. This ensures that vital funds needed to drive recovery efforts can quickly got to those whole need it the most.

Beyond floods, a variety of NatCat perils are also covered under parametric, including earthquakes, typhoons, heavy rainfall, snowfall and volcanic eruption. These factors make parametric a popular insurance-led innovative solution, and one that works well with traditional insurance.

Today, various reinsurance players, such as Munich Re, are leading the way in developing more advanced models to better understand this evolving risk and raising exposure awareness among both insurers and insureds. Achieving a flood resilient future remains the ultimate goal for many governments and businesses, even more so as the climate crisis dominates global conversations.

One of the key lessons that major flood events have taught us is that prevention is better than cure. Reinsurers need to emphasise the importance for businesses and governments to be prepared.

Alongside increasing the availability and uptake of insurance solutions, reinsurers would also need to collaborate with the right stakeholders to foster strategic partnerships to provide risk management expertise, and promote proactive risk mitigation through new policies and infrastructure changes.


Dr Stelios Minas is Nat Cat Consultant at Munich Re. Dr Satya Patnaikuni is Nat Cat Expert at Munich Re.

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