Opening Keynote Address by Minister for Finance and Deputy Chairman, Monetary Authority of Singapore, Mr Lawrence Wong, at Singapore International Reinsurance Conference (SIRC) 2021 on 15 November 2021

Distinguished guests,

Ladies and gentlemen,

Introduction

1. I am very happy to join you for this Singapore International Reinsurance Conference.

2. The theme for this year’s conference – “Quo Vadis” or “Where are you going”, is a timely question for all of us. Let me start with the road ahead for the global economy, and Asia.

The Road Ahead

3. The Covid-19 pandemic has disrupted global economic activity, upended livelihoods, and exposed the fragilities of our global health and social infrastructure. At the same time, our global system continues to contend with existential challenges – including climate change and cyber risk. 

4. Despite this, Asia’s fundamentals remain strong. Asia continues to lead globally in terms of economic growth, the rise of the middle class, wealth creation and urbanisation. Most Asian economies are working hard to bounce back from the pandemic. Singapore, like many other regional countries, is learning to live with Covid-19, and progressively re-opening our economy.

5. As Asia grows, more lives, wealth and assets will need protection. Asia’s insurance market is growing nearly twice as fast as the global market, estimated at more than 8% of growth per annum until 2030. [1]6. The insurance industry can support the region’s economies in seizing opportunities in Asia in two transformative areas –climate change and digitalisation.

Climate

7. First, on climate. The future of climate change will be won or lost in Asia. Climate change poses short and long term existential, economic and social risks to the region. Asia accounts for more than 50% [2]of global greenhouse gas emissions. The region is also disproportionately exposed to the physical impact of climate change, enduring the highest disaster fatalities globally. [3]8. Climate change will exacerbate the frequency and intensity of natural catastrophes, and widen the natural catastrophe protection gap. In the first half of this year, Asia accounted for 55 [4] of the 163 natural disasters globally, resulting in US$24 billion [5] in economic losses.

9. This is significant for Asia, where emerging economies make up half of the top ten countries most impacted by climate risk. [6] In fact, up to 27% of Asia's GDP could potentially be threatened by climate risk before 2050. [7]10. So, the insurance industry will need to work systematically with policymakers as they respond to climate change. Insurers can support climate risk mitigation and adaptation measures, and cutting greenhouse gas emissions and transiting to a low carbon economy.

Risk Mitigation and Adaptation Measures

11. Property and casualty insurance penetration remains low in Asia [8] and is disproportionate to the level of assets at risk. Increasing penetration rates in Asia will take time.

12. The insurance industry is an important partner in deploying alternative risk financing solutions. These could include government risk pools, and insurance-linked securities, which can ensure better protection that better matches the scale of coverage needed.

a. The Southeast Asia Disaster Risk Insurance Facility is an example of a regional catastrophe risk facility established in Asia. Domiciled in Singapore, and in partnership with Japan’s Ministry of Finance and the World Bank, it provides climate and disaster resilience solutions for ASEAN member states. Its first solution is a flood insurance pool for Laos, which was launched in February this year.

b. Insurance-linked securities or ILS, such as catastrophe bonds, are another emerging disaster risk financing solution that can serve the region’s needs. These securities enable the reinsurance industry to transfer and raise additional financing from the capital markets, for peak disaster risks.

c. Singapore will do our part to support the development of insurance-linked securities in Asia Pacific, through a sound regulatory and legal regime, and a growing base and expertise of ILS service providers. We have also introduced a grant scheme to reduce issuance costs.[9] Over the past 3 years, 18 ILS have been issued in Singapore. These cover a range of natural catastrophes across Asia and Australia, including typhoons, floods and storms. We have also supported the first Asian sovereign catastrophe bond covering earthquake and typhoon risks in the Philippines, which was listed on the Singapore Exchange.

Cutting Greenhouse Gas Emissions and Transiting to A Low Carbon Economy

13. The insurance industry is also an important partner for Asia’s economies in the transition to a low carbon economy.

a. Insurers can provide financing solutions to help de-risk, and support the deployment of more climate-friendly technology and infrastructure solutions in the region. A range of specialist insurers in Singapore including Munich Re Syndicate, Liberty Specialty and Swiss Re provide insurance solutions for renewable energy generation facilities, green equipment, energy storage systems and technologies.

b. Importantly, insurers can also use your influence and voice as an investor, in service of the climate transition. The insurance industry has total assets under management of about US$35 trillion.[10] You are in a good position to channel greater capital flows towards climate resilient and lower carbon assets.

c. In Singapore, we have a good base of investment arms of key regional and global insurers, including AIA, AXA, Allianz and Eastspring.[11] These investors are stepping up their sustainable investment efforts and capabilities, through integrating sustainability factors into their analysis of investments, and launching thematic sustainability funds.

Digitalisation, Technology, and Innovation

Technology and Data

14. Next, let me talk about digitalisation. Asia is rapidly digitising, and Covid-19 has accelerated this trend. Technology and big data are transforming the concept of insurance. This enables insurers to support not only risk transfer but also risk prevention, leading to better outcomes.

15. Through the use of advanced technology like sensors, satellites, and Internet of Things, richer and more meaningful data is being captured and used. Coupled with data analytics, insurers are able to develop sharper risk insights to size and price risks more accurately. 

a. For example, in the health insurance space, technology is enabling insurance to go beyond paying for medical claims post-affliction to encouraging healthy lifestyles and habits. Many insurers, including Singapore’s top life insurers, have begun tracking user’s health and habits through fitness devices and applications. The data is then used to price premium discounts for healthier habits by the consumer.

b. In the motor insurance space, AI and telematics devices are increasingly being used to assess and price insurance, with better pricing for safer driving habits.

Singapore’s Fintech Eco-System Supports Insurers’ Efforts

16. Despite pockets of advancement, many insurers are still weighed down by legacy technology systems.

17. Nevertheless, I’m encouraged to see that insurers are increasingly partnering with InsurTechs in the region to support their digital, data and technology ambitions. Over the past five years, nearly US$4 billion has been invested in InsurTechs, and there are at least 335 InsurTechs in Asia Pacific. [12]18. Singapore’s FinTech eco-system is well positioned to support insurers’ digital transformation. Our eco-system has grown in depth and breadth, offering a conducive environment for incumbents and start-ups to partner, test and grow.

a. We are home to over 40 innovation labs by global financial institutions, including 10 by insurers. We also have one of the region’s largest concentrations of InsurTechs, at 80 firms. Last year, InsurTech investments in Singapore nearly quadrupled to US$95 million.[13]

b. For example, ReMark, which is SCOR’s innovation lab, has its APAC headquarters in Singapore. ReMark is using data analytics and API[14] technology to enable dynamic insurance underwriting and effective health and wellness engagement. They are also using automatic speech recognition and AI to improve productivity and profitability for their insurance partners’ distribution channels.

Cyber Risk

19. With the growth of the digital economy, cyber risk has also increased. Asia is vulnerable, and the region alone accounts for over a quarter of global cyber-attacks in 2021. [15] The costs of cyber breaches are staggering. Such cyber-attacks not only damage a firm’s technology assets, but also cause financial and reputational losses, constraining future business growth. 

20. So cyber insurance forms a part of a holistic cyber risk management strategy. Apart from managing the financial impact of cyber incidents, many cyber insurance policies provide access to a panel of experts to support with forensics, repair and recovery of IT systems, and stakeholder management. Cyber insurers, as part of their underwriting process, also assess the client’s cyber security posture and incentivise firms with stronger risk management practices with better coverage and more affordable premiums.

21. Insurers can work closely with the cyber security industry and policymakers, to better assess and quantify cyber risk and to formulate risk insights in line with evolving digital technologies and developments, creating more reasonably priced solutions with proper coverage for firms. Singapore is doing our part to support efforts to develop the nascent cyber insurance market.

a. Several cyber insurers in the market are customising solutions, combining cyber risk capacity building, risk assessment and financing, for SMEs, which are an under-served segment in the cyber insurance market.

b. Insurers are also partnering policymakers in assessing their clients’ cyber risk. For example, QBE Insurance Singapore, Delta Insurance, Pandamatics Underwriting, and Beazley have incorporated the Data Protection Trustmark[16] as part of their cyber insurance underwriting process to assess whether their client has sound and responsible data protection practices. Trustmark-certified organisations enjoy faster application processing and premium discounts for cyber insurance.

Collaboration is Key in Developing New Solutions Together

22. Meeting Asia’s risk financing needs will require a pooling of expertise, financing, data and talent from policymakers, the insurance industry, and academia.

23. One platform for such collaboration is the Global-Asia Insurance Partnership or GAIP. This is a tripartite partnership between the global insurance industry, regulators, and academia, supported by the Monetary Authority of Singapore. It aims to produce actionable research insights, develop policy recommendations, and co-create innovative solutions for key structural and emerging risks that Asia faces.

24. We are encouraged to have many industry partners contributing funding and expertise to the GAIP. We have also been successful in attracting talent to the GAIP, including Mr Yoshihiro Kawai, former Chairman of the International Association of Insurance Supervisors. The GAIP’s CEO, Mr Conor Donaldson, who is well known to most of you as the former Head of Implementation at the IAIS, will be sharing more on GAIP’s work on pandemic risk, as a panellist at this conference, and we look forward to the insightful perspectives from the panel.

Conclusion

25. To conclude, our challenges are significant but they are not insurmountable. I am confident that with the commitment of the insurance sector, and collaboration between the public and private sectors, we will be able to move forward together – narrowing the protection gap in the region and supporting a more resilient Asia for future generations.

26. On that note, I wish all of you a successful and fruitful conference ahead. Thank you.

***

[1] Source: Allianz Insurance Report 2020; figures are for Asia excluding Japan.

[2] Source: Allianz Insurance Report 2020; figures are for Asia excluding Japan.

[3] Since 1970-2020, Asia Pacific has accounted for 57% of global fatalities from disasters. Source: Resilience in a Riskier World: Asia-Pacific Disaster Report 2021

[4] Source: Aon Global Catastrophe Recap 1H 2021

[5] Source: Aon Global Catastrophe Recap 1H 2021

[6] The Economics of Climate Change: Impacts for Asia, May 2021, Swiss Re: https://www.swissre.com/risk-knowledge/mitigating-climate-risk/economics-of-climate-change-impacts-for-asia.html

[7] The Economics of Climate Change: Impacts for Asia, May 2021, Swiss Re: https://www.swissre.com/risk-knowledge/mitigating-climate-risk/economics-of-climate-change-impacts-for-asia.html

[8] Developed markets such as Europe and US accounted for 80% of global property and casualty (P&C) premiums in 2018. In terms of P&C insurance penetration, developed markets accounted for US$1315 billion in premiums while developing APAC accounted for US$188 billion in premiums. Source: State of Property and Casualty Insurance 2020: The reinvention imperative. McKinsey and Company

[9] Introduced in 2018, the ILS grant scheme (extended to end-2022) which covers 100% of the issuance costs (up to SGD 2m cap) of catastrophe bonds in Singapore up to SGD 2 million. The objective is to help issuers focus on the merits of growing this asset class while removing the near-term frictional costs of issuances in Singapore

[10] Source: Cambridge Institute for Sustainability Leadership 2021, ClimateWise Research: Leadership

[11] Eastspring is Prudential’s Asset Management Arm.

[12] Source: Asia Insurance Review: Top 25 InsurTechs in Asia Revealed, June 2021

[13] Source: Singapore- Leading the Charge for Insurance Innovation In APAC, May 2021, Insurance Business Asia. Exchange rate of 1USD = 0.74SGD

[14] Application Programming Interface (API)

[15] Source: Understanding risks within Asia Pacific’s growing cyber insurance market, Verisk June 2021: https://www.verisk.com/insurance/visualize/understanding-risks-within-asia-pacifics-growing-cyber-insurance-market/-

[16] The Data Protection Trustmark (DPTM) was launched by the Personal Data Protection Commission In collaboration with IMDA. DPTM provides third-party validation and assures organisations that they have robust data protection policies in place.