Countries such as Indonesia, Thailand and Cambodia have extensive coastlines and low-lying territories. Such areas are more vulnerable to risks related to rising sea levels and global warming. A double whammy of sinking cities and rising sea levels have caused countries like Indonesia to move its capital from Jakarta to Kalimantan.

“In the last 50 years or so, a significant population throughout Asia and other places in the world has moved to urban areas near the coast. You have more people and more value moving closer to the coast. You have sea levels coming up and the ground going down. Some of it is natural but a lot of it is groundwater extraction, taking water out of the ground for drinking water or industrial processes causing the ground to drop. So that’s where you start to see that something is going to have to change,” said FM Global VP and manager of research Lou Gritzo.

Taking a long-term view of climate risks

Such hazards are not new to Asia Pacific, but the impact of climate change is becoming more severe and, in some cases, more frequent. While there have been seasonal variations each year, impacts related to sea levels are becoming more serious. He said insurance is mostly an annual renewal and thus, there is not a lot of consciousness about the overall trend especially when insurers experience a year where the hazards are not particularly pronounced.

He said the insurance industry is prone to short-term reactions to climate risks. There was an unprecedented year of tropical cyclones in the Atlantic region in 2005 where the insurance industry reacted by backing away from the market, premium rates went up and insurers dropped their clients. However, it was followed by an unexpected calm throughout the region in the next few years.

“The insurance industry and clients need to adapt to a longer-term view. But we do see many companies whose boards of directors are asking what they’re doing about climate risks. There’s also increasing regulation in Australia and throughout Asia. Such regulations have existed in Europe for a while and it’s starting to get traction in the US for climate-related disclosures,” he said.

“Asia Pacific got hit by disasters in places like Bangkok, Japan and even Brisbane back in 2011. Then recently, Brisbane got hit again. So, there’s no pattern to natural disasters. And that’s where we, as an insurance company, must partner with our clients to make them more resilient over the long-term. It is a long runway that we are looking at,” said FM Global Asia Pacific VP and division engineering manager Yong Seek Ying.

Volatility of climate risks

Despite advancements in technology and the availability of climate data, there are no crystal balls¬ to predict accurately when the next natural disaster will occur. Therefore, insurers and clients will need to invest in securing properties for the long run. This includes building the right infrastructure, establishing safety procedures and adhering to building codes.

Ms Yong said one of the important factors for property resilience is building codes. Countries need to take building codes seriously and establish rules that consider the threat of natural hazards such as strong winds, floods and earthquakes. Authorities will also need to enforce those building codes and ensure developers adhere and maintain the codes.

“Traditionally, the challenge that businesses face in reducing their risk is the cost of doing it and understanding that cost is going to be something that that they’re going to have to plan for - and getting those costs in their long-term and capital improvement plans as part of the way they do business as opposed to focusing on quarterly shareholders returns,” said Dr Gritzo.

Insurance as a secondary measure against climate risks

He said a haphazard perspective is when insurance is used as a primary safeguard against natural disasters. Such behaviour encourages property owners to buy cheap land but disregard the importance of mitigating risks surrounding the properties and investing in solutions such as flood barriers and safe building practices.

“Insurance should be a backstop. It shouldn’t be a way of transferring all the risk. I don’t think that’s economically sustainable. It costs too much and some companies and households can’t afford that. I think the goal should be to make insurance a secondary measure,” he said.

Ms Yong said, “I’ve worked with clients in the Philippines. From an engineering perspective, I think the most important thing is to help them to ensure that their roof doesn’t get blown off because we know that the hazard is there. If the client has decided to build a facility in Philippines, then our job is to make sure that the building is able to withstand the forces of nature. When our engineers visit the client, it’s not just to identify what is lacking, but what can be done to improve the building. So that if an event were to happen, it’s hopefully just an inconvenience rather than a disruption to them.”

Getting it right with climate risk data

A challenge with assessing risks from climate change is that the rate of change is not consistent over a long period of time. He said predictive analytics algorithms try to accommodate that by taking data over decades but tend to put more significance in patterns that occurred recently instead of taking a more holistic approach.

“The best way to handle that from a technical perspective is to use historical data but also use climate-model predictions and physical climate monitoring solutions for physical modelling. It’s not a high-tech problem. It’s boots on the ground, go out and put a monitoring station with a satellite internet connection or 4G. It’s just a matter of using applying the technology we have, to get a better resolution of the data and understand the local effects that could affect site-specific risks. I don’t see that there’s a certain need for one specific technology that’s going to cause a breakthrough in our understanding.

This article first appeared in Asia Insurance Review.