How the insurance industry supports Asia in net-zero transition

Asia has been warming faster than the global average.

In its two climate-related papers, the Global Asia Insurance Partnership (GAIP) has emphasised the critical role of the insurance industry in mitigating the effects of climate change in Asia, a region that has experienced significant environmental and economic impacts due to its unique vulnerability. 

Min Hung Cheng, Deputy CEO of GAIP, highlighted, "Asia was actually the world's most disaster-hit region last year in 2023. Large casualties and economic losses were reported due to floods, storms, and heat waves.” 

Cheng also pointed out that Asia is warming faster than global average, underscoring the urgency of adopting sustainable practices to prevent catastrophic economic impacts, estimated to potentially reduce Asia's GDP by 26% by 2048.

GAIP has published two papers in this context, the first entitled "Too Hot to Insure," which examines the intersection of climate change with the insurance sector's capabilities. "That paper was actually a collaboration between GAIP and the Financial Stability Institute, where we examine how the insurance, public and private sectors are taking into account climate change in the pricing and underwriting," Cheng explained. 

The findings reveal increasing uncertainties in the frequency and severity of climatic events, posing substantial challenges to the insurance industry's risk capacity and demand.

Cheng said, "This leads to increased insurance claims costs for the insurance industry but could potentially also lead to increased demand for insurance.” She warned of the 'insurability tipping point' where increased risks may lead to higher premiums and even withdrawal of coverage in some communities, significantly expanding the protection gaps.

"We believe that the insurance industry, with its deep expertise in risk management, has vast reach; it can do more to support Asia towards a resilient Net Zero future beyond its traditional role as a provider of financial protection," said Cheng. He outlined multiple roles the industry must play: as risk advisors, educators, influencers, investors, and wealth managers.

The insurance industry is positioned to influence broader societal behaviours through its pricing strategies and policy offerings, which can encourage more environmentally friendly decisions. Additionally, by partnering with academic institutions and engaging in public education efforts, insurers can increase climate literacy and support sustainable practices.