The first discussions about the need for a new accounting standard for insurance contract liabilities were initiated by the main standard setters IASC and FASB way back in 1997. Due to the complexity of the task and competing priorities, a “temporary” GAAP standard for insurers called IFRS 4 was implemented in 2004, which ended up lasting almost 20 years.

So here we are, with the new IFRS 17 standard implemented since 2023 in many jurisdictions across the world. It has been a very long ride and one year (and counting) since the new accounting standard has gone into effect.  Everybody would agree that this is the most complex and only industry-specific standard of all the IFRS standards, including IFRS 9 (for financial instruments on the asset side of the balance sheet).

However, what we probably did not know back then, is that it would not only be very difficult to implement the new standard but also to do it in such a way to make financial reporting under the new standard sustainable as part of the “business as usual” duties of the combined finance and actuarial function of insurers.

If, for example, an insurer used to have a financial closing time of T+10 working days, now they may at best be able to do T+15 or even T+20. As a result, many insurers are struggling to close their books on a timely basis. Even with the help of extra contractors, they are looking for more sustainable ways to improve the efficiency of their financial close cycle.

However, rather than looking for temporary workarounds and tactical solutions, the efficiency of the whole end-to-end (E2E) financial reporting chain, from source to report, will need to be reengineered to achieve this.

This E2E financial close process can be subdivided into two main parts, from “record to close” and from “close to report.” The longer it takes to close the books (the first part), the less time you have to report and analyse the results (the second part).

So, it’s important to spend less time on the data preparation, calculation and reconciliation processes so you have more time to spend on the financial reporting and data analytics processes.

If you look at the entire financial close process, there can be many different data sources and sub-processes involved, covering multiple departments, from underwriting, distribution and operations to IT, finance and actuarial.

These all need to work together seamlessly, like an orchestra, to make it work well, playing to the same tune. If you try to do all these subprocesses manually, you can imagine how much work and time it takes to produce reliable and insightful financial results every time you close the books. When we looked at the main inefficiencies of the financial close process, we found that many of the controls are still done manually.

Large insurers can literally have thousands of internal financial controls to execute for each closing cycle, many of which are unique to each reporting entity due to different legacy source systems and local statutory/regulatory reporting requirements. However, when we looked at the nature of these controls, we found that there are roughly 20 different types of controls being used. More importantly, we found that when the control is very repeatable in nature and follows a specific pattern, it’s most likely a good candidate for control automation.

Keeping in mind this need to incorporate more financial controls automation, several solutions have emerged over the years to enhance efficiency for insurers. Current market solutions offer great insights into what your current versus potential level of automation for each control step is.

Some look specifically at the potential efficiency gain per control and where you can get the biggest “bang for your buck” when automating your internal finance controls framework. By implementing suggested changes, insurers can further automate their financial end cycle processes.

Future reporting requirements might require the weighing up of even more data that impacts company performance, such as climate change and other ESG metrics. Shifting towards a more automated and streamlined workstream can free up time for insurers to critically analyse results that inform future financial planning and significantly reduce the delay in the “record to close” process.

The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organisation or its member firms.

Martyn van Wensveen                  EY Asia-Pacific IFRS 17 Implementation and Finance Transformation Leader

Narayan Devanathan                  EY GDS, Senior Manager AI Enabled Automation, Tech Consulting

The post Making your financial controls automation truly work for you appeared first on InsuranceAsia News.

Asia, home to many rapidly growing economies, has made significant strides in reducing poverty, improving health and education, and raising living standards for millions of people. Advances in forecasting, early warning systems, and flood defence have drastically lowered deaths from floods and typhoons compared to a century ago.

However, significant disparities and vulnerabilities remain, especially concerning natural catastrophes, particularly floods.

According to the Intergovernmental Panel on Climate Change, the UN’s climate body, human-induced climate change is expected to cause heavy rainfall events to become more frequent and intense across most regions globally. This trend is anticipated to persist with continued warming.

Acts of God or man?
In his 1942 dissertation, an American hydrologist and geographer, Gilbert F. White, said “Floods are acts of God, but flood losses are largely acts of man”.

Scientists assess the impact of climate change on extreme weather by examining natural and human factors. Hydrometeorological (e.g., floods and storms) and climatological disasters (e.g., droughts) have been trending upwards in recent decades, unlike geophysical disasters (e.g., earthquakes and volcanic eruptions). Prolonged periods of increased rainfall primarily result in fluvial (river) flooding, while short, intense cloudbursts can lead to pluvial flood or localised flooding without any large water bodies overflowing.

In addition to climate change, the impact of increased flood frequency is compounded by rising population exposure, increased personal wealth and greater population vulnerability. According to a report by a reinsurance broker, economic losses in the Asia Pacific region due to natural disasters soared to US$65 billion in 2023, primarily driven by floods in China and droughts in India. Of these total losses, only 9%, or US$6 billion were covered by insurance.

The report highlights that floods have been the costliest threat in Asia Pacific for the fourth consecutive year, accounting for over 64% of total losses in 2023. Annual flood losses have exceeded US$30 billion since 2010. This situation underscores the “climate injustice” where the largest greenhouse gas-emitting countries and the world’s most vulnerable economies are not the same, leading to significant global costs.

Source: Aon’s report on climate-and-catastrophe-insights-report.pdf (aon.com)

Exhibit A highlights the countries that are most vulnerable to climate change. The Notre Dame Global Adaptation Initiative index gauges countries’ vulnerability based on their exposure, sensitivity and ability to adapt to the negative impacts of climate change.

Source : Country Index // Notre Dame Global Adaptation Initiative // University of Notre Dame

Exhibit B: Annual carbon dioxide emissions per capita

Source: Per capita CO₂ emissions, 2022 (ourworldindata.org)

The blame game – is climate change really at fault?
Across Asia and the Pacific, millions of people face multiple threats to their security, including economic, social, political and environmental. While it is common to blame climate change for these issues, the reality is that any of these dangers are self-inflicted, with climate change being more of a consequence than the cause.

Flooding, a natural part of ecosystems, is worsened by human activities. Jakarta, Indonesia, with 10 million residents, is one of the fastest-sinking megacities with 40% already below sea level. Its flooding issues are exacerbated by rapid, unplanned urbanisation, land use changes, and population growth. The narrowing of river channels and canals, combined with periodic clogging from sediment and trash, intensifies the problem. Blaming climate change alone overlooks significant sociopolitical factors.

Similar situations are seen in emerging cities like Bangkok, Thailand; Ho Chi Minh City, Vietnam; and Manila, the Philippines. A recent study revealed that 37 of 82 major cities in China are experiencing subsidence, which means the land is gradually sinking, affecting 70 million people with rate of 10mm a year or more. Though seemingly minor, this cumulative effect damages infrastructure and worsens flooding.

Mitigating subsidence is complex, as it is often caused by groundwater extraction for drinking water. Simply stopping extraction is not viable without finding an alternative water source first.

Urban planning often overlooks poverty, despite clear evidence that migration to cities is driven more by the need for employment and survival than by the allure of urban amenities. To reduce the impact of floods on impoverished populations, informal settlements should be strategically planned and encouraged to develop outside of floodplains or wetlands.

A fractured governance system can exacerbate urban problems. Cities often focus on creating new infrastructure but may lack the funding or public interest to maintain or upgrade existing facilities. Over time, this neglect leads to infrastructure deterioration, turning assets into liabilities and endangering lives. To minimise damage and protect human life, it is crucial that urban local bodies have integrated functions.

During a crisis, disjointed management – where water, transport, fire services and planning are handled by separate departments – can create significant challenges.

Asia is not alone
Paris shined this summer showcasing its best during the 2024 Summer Olympic Games. However, more than a century ago, the city was devastated by the Great Flood of 1910. Large parts of Paris were submerged for two months, including the famed metro subway system and over 20,000 buildings. Although Paris now has a chief resilience officer to mitigate the impact of future floods, it is estimated that rebuilding the infrastructure after a similar flood today would cost over EUR30 billion.

Europe is dotted with historical flood markers on its buildings, serving as a reminder. Both the public and politicians should heed these warnings from the past and prepare for the next flood.

3Ds: damage, disruption, disease
Floods have economic, social and environmental impacts. Economically, they cause damage and disruption to property, manufacturing, businesses and the daily activities of residents.

For instance, the 2011 Thai floods severely impacted the manufacturing sector forcing over 14,000 businesses to close nationwide. Approximately 1,300 factories in central Thailand were affected, disrupting both local and global supply chains.

Production of cars, electronics and other goods was halted for months as factories were submerged. This disruption had a ripple effect on global manufacturing, with Japanese car manufacturers suspending production for several weeks.

Social impacts include health risks from exposure to contaminated floodwaters, increased waterborne diseases and mental health issues stemming from loss and displacement. Long-term effects such financial strain, loss of education and damage to cultural heritage are challenging to quantify.

Environmentally, floods cause soil and bank erosion, bed erosion, siltation and landslides. They damage vegetation, and pollutants carried by floodwater can degrade water quality, habitats and flora and fauna.

Playing catch-up
Mitigating and adapting to urban flooding requires a comprehensive approach that combines structural solutions such as storm surge barriers and retention areas along with non-structural solutions, which are urban planning adjustments, response capabilities and aligning institutional frameworks.

Outlined below are key strategies to address urban flooding – integrating immediate actions with long term nature-based solutions to mitigate disaster:

Urban planning. Adapting urban planning and zoning practices to consider flood risk can help guide development away from flood-prone areas and ensure that new construction incorporates flood-resilient design principles. Integrating floodplain management regulations into urban planning and zoning can reduce exposure to flood risk. Additionally, improving capacity and ensuring regular maintenance of drainage and sewer systems can better manage stormwater and reduce overflow during heavy precipitation events.

Improving resilience at the community level. Educating the public about flood risk and tailoring solutions on each community’s risk and flood profile are essential. This may include encouraging the use of traditional construction techniques that ensure all floors are raised above typical flood heights.

Sponge cities. Following the model adopted in China, the concept of sponge cities involves maximising open land and green spaces to absorb and manage rainfall. By integrating parks and green infrastructure, these cities can significantly reduce the risk of flooding. This can also use rainwater harvesting techniques to recharge groundwater.

Using modernised flood protection. Structural elements such as dams, levees, and retention basins can significantly reduce flood risk for communities. In addition to traditional methods like manually filled sandbags, there are now more innovative flood protection systems available for individual homeowners or businesses.

Conserving water bodies and mangroves: Preserving and restoring natural water bodies such as lakes and wetlands, play a crucial role in flood management by acting as reservoirs for excess rainwater, preventing its accumulation in urban areas. Strict regulations are necessary to prevent encroachments and pollution of these vital ecosystems.

These solutions are not new, and many countries have attempted to implement them in various ways. Thailand’s 2011 floods were devasting but led to significant improvements in flood management. Since then, the country has invested heavily in flood mitigation, introducing a strategic water management plan and funding flood risk reduction infrastructure in vulnerable areas.

Similarly in India, the 2024 amendment to the Disaster Management Act of 2005 proposes establishing an Urban Disaster Management Authority (UDMA) in each state capital and all cities with municipal corporations. The bill also mandates the creation of a disaster database at both state and national levels.

The role of (re)insurance
Floods are one of the most complex natural perils, with highly localised impacts, making them more challenging to insure compared to other perils. The varying risk characteristics of different types of floods – river, flash, storm surge – add to this complexity. Affordable insurance is often unavailable for poor communities.

A fundamental principle of insurability is “assess ability”. Risk exposures, variation in vulnerability, and local geographic complexities make it difficult for insurers to design an ideal product. Another crucial principle is mutuality or diversification. If only the high-risk customers, such as those who have previously experienced a flood claim, seek flood coverage, it becomes prohibitively expensive without sufficient diversification.

Effective product design starts with data. However, detailed, accurate information on flooding hazards is often hard to obtain at national and local levels due to the lack of high-quality, high-resolution topography, complicating risk assessment and modelling.

For over a decade, Allianz Re has utilised flood maps from a major external provider. These flood hazard maps, combined with internal and external portfolios, help build a comprehensive risk picture. The availability of flood catastrophe models in Asia has gradually expanded, aiding in estimating capital requirements and reinsurance costs.

Geocoding of insured assets is vital for flood risk assessment because flood events are so geographically specific. For instance, a property located at the bottom of a hill is at greater risk than one slightly elevated nearby. Geocoding enhances pricing accuracy, risk knowledge, and portfolio diversification, avoiding risk accumulation in hotspots.

However, geocoding assets in Asia can be challenging due to imprecise addresses. Street names and numbers are not as strictly defined in some regions, often leaving models with only a postal code. Additionally, information such as construction year, building materials and design can also be difficult to obtain, reducing the effectiveness of flood risk mitigation tools.

(Re)insurers have improved their understanding of supply chain vulnerabilities and their ability to accurately price flood risk. Governmental efforts to boost insurance penetration are crucial to closing the flood protection gap. At Allianz, we leverage our global expertise to assists our clients in developing solutions for their local markets.

Sonia Rawal                   P&C and Agriculture Client Manager, Allianz Re

Katherine Wenigmann                Flood Expert, Allianz Re

The post Water, water everywhere… appeared first on InsuranceAsia News.

The International Maritime Organisation’s (IMO) greenhouse gas (GHG) strategy is to reach net-zero emissions from international shipping by or around 2050, and there are various checkpoints to meet along the way.

Complete and accurate data will be needed to know whether the targets are met, and at the Marine Environment Protection Committee’s latest session (MEPC 81), in spring 2024, agreed amendments to Appendix IX of MARPOL Annex VI showed the IMO increasing interest in securing more complete data on ship emissions.

The amendments will enter into force in August 2025 and will require the submission of additional data to IMO’s document collection system (DCS).

The carbon intensity indicator (CII) regulations are already heavily reliant upon data, not only to ensure that the attained annual operational CII can be correctly calculated, verified and recorded, but also so that shipowners (and charterers) can monitor how the vessel is performing. The calculation also offers guidance on whether the ship’s operation needs to be adjusted to meet the required annual operational CII.

Knowledge sharing in shipping
Any discussion of CII regulations must acknowledge the problems associated with them, including the apparent unfairness and inefficiencies that have perhaps watered down their impact.

Conversely, deeper conversations between owners and charterers about data captured (in part) by these regulations must be seen as a real positive.

It would be fair to say that there is nervousness among stakeholders when it comes to data transparency and sharing. However, the regulations have increased the need for owners and charterers to be on the same page about the ship’s operational efficiency.

The regulations have, therefore, prompted more dialogue between owners and charterers about accuracy, transparency and the sharing of data.

Industry initiatives like the Sea Cargo Charter are encouraging that dialogue, and its expansion in April 2022 to include shipowners allows charterers and shipowners to monitor and report their emissions under a common framework.

Cost will also always be a driver for shipping and, in this context too, data is proving to be key.

The incentive to ensure data accuracy is clear. Taking the European Union’s Emission Trading System as an example, emissions are now directly attributable to a cost. As this will, in general, be passed down the charterparty chain and on to the end user, charterers have an interest that goes beyond the cost of fuel itself and includes reducing their EU allowance cost exposure.

Furthermore, with the expected introduction in 2027 of the IMO’s market-based measures – one an economic measure and one a technical fuel standard – the focus on cost will only keep on growing. So too will the focus on data truth, transparency and verification.

The true costs of change
Not all costs can be immediately absorbed or passed on as part of the trade when it comes to decarbonisation. The cost of energy efficiency technologies (EET), or alternative energy sources like wind propulsion, may be prohibitive to an owner unless there is cost sharing or financing available. Nevertheless, understanding the savings any given EET or wind technology may provide will require complete and accurate data and analysis.

For owners and charterers, greater consistency of data will help develop more transparent methodologies to calculate the true impact of EETs.

The framework provided by Poseidon Principles to integrate climate considerations into ship financing also depends upon high-quality data and analysis. And for future fuels and technologies, obtaining data, for example from pilot projects, will allow for more informed discussion and fact-based decisions.

Scrutiny of data and data sources will therefore inevitably increase, as a reflection of the critical role transparency plays in realising regulatory, commercial or voluntary objectives. Verification and certification will continue to be imperative, as will the clarity of the frameworks within which the data is being used.

And to get full value from the data captured, collaboration and shared learning amongst stakeholders will be vital to drive the energy transition.

Commercial considerations that act as a brake to information sharing must therefore be weighed up against the risk of missing important pieces of the decarbonisation jigsaw because one stakeholder holds on to data that would be useful for another.

Good work is being done by many to get the shipping industry to net zero, but a joining up of data and knowledge will be vital if we are to use it in the timeliest way and for maximum impact.

Helen Barden, Senior Solicitor – External Affairs, NorthStandard

To find out more about NorthStandard and its work on decarbonisation, visit north-standard.com

The post Data dialogue key to achieving decarbonisation goals appeared first on InsuranceAsia News.

Forensic investigations form part and parcel of many insurance claims in the Asia-Pac region. Whether a loss is complex, costly, or if there are expected to be questions down the line around causation and liability, insurers and their loss adjusting partners will request that forensic capture of evidence is undertaken.

Yet,  the robustness of an investigation  often remains  untested until years down the line if and when a loss makes its way to court. At this stage, evidence collection, due process and chain of custody will all come under the spotlight. Even in a simple fire claim, cases can fall over in court if they were not investigated properly.

So how big an issue is this?

A case may ultimately rise or fall on the reliability and admissibility of the forensic evidence. While court represents the ultimate test of the evidence, the majority of disputes will settle in mediation. Without proper evidence collection and consideration, there are more issues in dispute and all parties are in a weaker position from which to negotiate settlement. It is more likely that settlement will be unfavourable or will need to be resolved in court.

What are the key considerations when it comes to undertaking a forensic investigation within the context of an insurance loss?

The key consideration for the forensic investigator is to faithfully bring the scene to the court. In this regard, the approach to evidence collection must be systematic, thorough, and complete. While the primary instruction of the insurer is typically to determine the cause of the loss for the purpose of indemnity, the forensic investigator is to identify all the likely issues that could be raised in a legal dispute, and actively seek to resolve these through evidence identification and collection at the scene.

This requires a working knowledge of insurance policies, exclusions, conditions or endorsements that may apply, as well as any factors that may have contributed to the loss and  extent of damage, all of which ultimately may impact indemnity, recovery, as well as apportionment of blame in a legal dispute.

Consider a commercial kitchen fire caused by a flare up while cooking that spread through the duct and into the building, impacting on multiple tenancies. Once the cause is established, a forensic investigation should capture the fire suppression equipment, maintenance records, evidence as to whether the duct was cleaned effectively, whether the design of the duct was compliant, if modifications the fit out of the building have led to subsequent non-compliance, and evidence of adequate fire separation between tenancies.

Where do cases tend to fall down?

Most cases fall down due to the introduction of doubt that comes from incomplete evidence capture.

Poor evidence capture is often a by-product of expectation or confirmation bias, a phenomenon where an investigator unconsciously fits the interpretation of the evidence into their pre-conceived expectations, allowing it to influence investigative decisions.

Without robust examination methodology to systematically capture the scene, it is often the case that the introduction of bias leads to the collection of evidence which supports the preferred opinion, and contradictory evidence is either not looked for, dismissed, or explained away, leaving holes in the evidence capture.

A forensic investigation should be ‘evidence-led’, meaning it should have an emphasis on the objective presentation of all evidence from which conclusions are then drawn. Where evidence capture is poor, the opposite is usually seen, with explanations for how the cause can explain the evidence, conclusions presented followed by the features that support it, and opinion that is not linked to specific observations. Such evidence may present as extremely convincing to the lay person, until another expert reviews the evidence and exposes the holes.

How can claims professionals ensure cracks don’t appear in their case?

International standards for forensic sciences state that “scene examination is the first step of the forensic science processes, and the treatment of an incident scene predetermines the quality and quantity of information available for the investigation and ultimately the information available as evidence in court.” Ensuring that a comprehensive scene examination by a forensic expert is undertaken at the outset will lead to the best outcomes. In this regard, the principle of ‘go early’ and ‘go hard’ should be remembered.

Objective review of observations and opinions throughout the investigation provides protection against unconscious bias and identifies any weaknesses in the evidence that  can easily be addressed. If the first challenge occurs years down the line when questions are raised by another party, the original scene is often long since gone, and these question remain unanswered. A robust peer review program will give greater certainty that the opinion will stand up to scrutiny.

Peter Jeffrey, Principal Consultant, Halliwell

Halliwell offers comprehensive forensic technical investigation and loss consulting services across the globe, including engineering, forensic investigation and construction consulting. Wholly-owned by global claims services provider McLarens, Halliwell operates as distinct legal entity with its own operating system, business model, and governance, offering independent but complementary services to the insurance and related markets.

The post Evidence-led forensic investigations stand the test of time appeared first on InsuranceAsia News.

Fintechs are seizing the moment, finding ways to bring value to traditional insurers. Insurers are making their own investments and increasing the velocity of experiments to stay ahead of the competition from emerging AI-centric competitors.

Industry players have even more compelling reasons to collaborate, and to partner with cutting edge AI companies and big tech to win in the new data-driven, AI-powered world. Here are six trends to watch as we transition into 2024:

AI “everything, everywhere all at once”. There is no better framing to describe the impact of AI than referencing this independent American movie title. Every single facet of the insurance value chain is about to be re-imagined by AI, with only a question of when and how fast it takes place. In 2024 and beyond, insurance companies will further automate claims, drive higher customer engagement, and augment their workforce and agents with AI capabilities. This will be fuelled by new real-time data streams to make better, more informed underwriting and pricing decisions. Firms that can orchestrate AI will also be able to deliver AI-centric products and services that can continuously adapt and improve over time.

Redefining the value chain. Imagine starting 2024 in a world without the insurance industry, but having the AI capabilities we have today at our fingertips? Would we be developing solutions to address the protection needs of customers in the same way the industry operates today? Likely not. Addressing customer’s needs gives rise to new possibilities when armed with AI. This will, however, create a conundrum for insurance carriers. As AI evolves, customer protection needs will become more holistic and evolve beyond insurance as a result of the way the technology is able to support risk management.

Prediction and prevention become the new frontier. The insurance industry has always had a retrospective approach, leveraging historical data to perform trends analysis, and to develop pricing and underwriting models that maintain financial stability. But as we find ourselves in an AI-enabled world in 2024, the convergence of massive volumes of unstructured data from IoT, sensors, and wearable tech will lead to a “shift left” epiphany for the industry. Similar to the paradigm shift seen in the software industry to prioritise testing and quality control earlier in the development process, insurers and insurtechs are poised to become as obsessed with prediction, prevention and detection as they are today about claims.

Real-time product constructs and features. The surge in availability and relevance of real-time data, combined with the ability of AI to process this and extract valuable insights, will transform the way insurance products are delivered. The industry has been slow in utilising real-time data in the development of products and features but as the ability to predict and detect adverse events increases, the capability to prevent those events from ever occurring will become a real possibility. Speed is of the essence in prevention and the availability of this real-time data combined with AI will accelerate the industry’s ability to drastically reduce losses over time – a win for both customers and insurance carriers.

Recovery as an integral part of the product proposition. ‘Insurance’ is commonly defined as “a means of protection from financial loss”, with ‘protection’ defined as “any measure taken to guard a thing against damage caused by outside forces”. ‘Recovery’, which is often perceived as a concept for post-loss, falls outside of these definitions, yet insurance has long been synonymous with extending financial support to assist in the recovery process. This creates additional considerations for insurers – which of these recovery services to build on their own and which can they partner to deliver. As we enter 2024, the availability of APIs for nearly every business function suggests that recovery will be an even more critical element of product propositions going forward.

Generative AI: the frontier for revolutionising customer experience. With the explosion of interest in generative AI, exemplified by the launch of ChatGPT and the wider availability of proprietary and open source large language models, use cases for this technology have emerged rapidly. Customer service is one of the most widely discussed domains, with generative AI predicted to improve almost all aspects of a customer’s journey. Generative AI is set to change the way customers interact with insurance and protection, redirecting away from static policies and renewals, towards greater interaction, education, nudges and real-time suggestions and support, built off deep specialist training in each product vertical or risk domain.

Looking ahead, as the insurance industry continues to innovate, there is no question that insurtechs will need to compete on the speed and ease of integrating and embedding their AI-driven protection products and services into both traditional and new distribution channels.

This article iswritten by David Lynch, Group Chief Technology Officer, bolttech.  Lynch is based in Melbourne. 

The post Six tech predictions for the insurance sector in 2024 appeared first on InsuranceAsia News.

While the stakes are higher, cyber leaders however feel the effects of tightening budgets. The recently published EY 2023 Global cybersecurity leadership insights study finds that an inadequate cybersecurity budget is one of the major challenges facing organisations as they seek to manage cyber risk. Cyber leaders in Asia Pacific are more concerned about cybersecurity budgets than the rest of the world: 44% of Asia Pacific respondents feel inadequate cybersecurity budgets pose a greater challenge to their organisations’ approach to cybersecurity today, as compared to 36% of global respondents.

Despite these budgetary challenges, the insurance industry sees a multibillion-dollar coverage gap in the cyber insurance market. The EY 2023 Global Insurance Outlook examines insurers’ development of cyber insurance in response to the market’s rapidly evolving needs for coverage. As important as cyber insurance policies are, they are however no substitute for investing in cybersecurity risk management.

How can companies take a more informed and proactive cybersecurity approach? At the EY organisation, we advise the following:

Increase awareness of exposure to cyber risks
The pandemic has sharpened the world’s focus on economic, supply chain and national resilience — and cyber resilience should be no different. How to sustain business operations and survive in the face of a concerted cyber incident is a huge challenge for any organisation, which cannot be overlooked.

When advancing on their digital transformation journeys, organisations must embed cybersecurity at the outset, recognising their “attack surfaces” are expanding, and adopt a “secure by design” mindset – cybersecurity is becoming ever more a business differentiator in the market. At the same time, they cannot assume cyber risk is being handled by their service providers. They need to take a shared responsibility approach and hold these providers to the same security standards across the organisation.

Share risk management expertise
When we surveyed cybersecurity leaders in our EY 2023 Global cybersecurity leadership insights study, we identified organisations that achieved better cyber outcomes – with fewer cybersecurity incidents and faster time to detect and respond to incidents. These “secure creators” strengthen their cybersecurity by emphasising simplicity, holistic thinking, and integration of cybersecurity considerations across the organisation.

The sharing of such ingredients of success helps organisations to advance, supporting the development of a risk management strategy that is more effective and drives value. And when it comes to cyber insurance, we see more insurers working directly with larger clients to better understand their risks, the measures required to reduce that risk and the tailoring of policies and premiums.

Encourage investment in risk reduction
Despite the pressure on budgets — driven largely by economic headwinds — cybersecurity leaders are best served by demonstrating the “buy down” in cyber risk to their CFOs. Cyber risk can be quantified using several approaches that are well understood, not least of which is FAIR (Factor Analysis of Information Risk). FAIR quantifies risk by assessing the probable frequency of a cyberattack and the magnitude of the resulting loss. In this way, the cost benefit analysis of investing in cybersecurity becomes better understood. Speaking in language that resonates with the CFO and the board achieves the best budgetary outcomes for cyber risk reduction programs.

Facilitate robust responses to cyber incidents
How do companies respond to cyber incidents? They start by simulating a cyber incident to investigate the impacts on the business of a real-world attack, including understanding what happens if critical systems are taken out of service or key data is locked up through ransomware. Learnings from these invaluable exercises then need to be fed back into the incident response and recovery plans, as well as to help identify gaps in cyber defenses that then need to be addressed.

As with climate change, cyber risk is an issue too big for the insurance industry alone, especially because cybercrime is so highly lucrative. Collaboration across ecosystems will help insurers understand the extent of the risks, but also identify and promote leading practices across the cybersecurity lifecycle.

This article was written by Jeremy Pizzala, EY Asia Pacific Cybersecurity Consulting Leader. Pizzala is based in Hong Kong. 

***

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.

The post Companies need proactive approach to cyber security in a deteriorating risk landscape appeared first on InsuranceAsia News.

Even before Russia quit the UN-brokered deal allowing Kyiv to ship its grain via the Black Sea, traffic passing through Ukraine’s Danube ports was accounting for around a quarter of the nation’s grain exports.

Ukraine transhipped 8.1 million tonnes of grain through the port of Constanta in the first seven months of 2023 – more than 40% of all grains handled by a port, which already deals with exports from Romania itself, Hungary and Serbia. In May alone, grain volumes through Danube ports hit 2.2 million tonnes, overtaking exports made via the Black Sea corridor.

With the Danube route now the principal exit option for Ukrainian grain, Russian firepower will doubtless have a say in the handling capabilities of the Ukrainian ports of Reni and Izmail, which is close to the Romanian border. However, recent government projections still foresee Danube exports reaching at least 20 million tonnes in 2023 – three times pre-war volumes.

The routing switch and the consequent redeployment by north European owners of inland and coastal vessels to handle the new trade have created new challenges for operational safety along the Danube.

Congestion challenges
Where risk is concerned, the conflict itself dominates day-to-day reporting but the course of events has also caused major vessel congestion. The vessels coming into the market are maintained to the highest standards, but their crews may have little or no experience working on these waters.

In one example, a vessel in convoy came out of the bend in heavy weather on the wrong side of the river, causing a collision.

With port infrastructure under strain, there can also be disconnects between international operators and local authorities, especially when incidents or accidents occur. A part of that is about lack of previous contact and a difference in cultures when it comes to getting things done, but there have also been incidents where vessels have been hit, yet nobody seems to have seen anything.

In one instance, NorthStandard set up a meeting between one of its members and the Maritime Anti-Corruption Network to take forward an investigation into a hit-and-run incident that led a moored barge to sink. Inquiries reached a dead end.

Nevertheless, NorthStandard has been invited to intervene in incidents on several occasions this year, including to support refloating operations.

We have used our experience to coordinate and project manage, with our local correspondents helping to resolve issues where the infrastructure hasn’t been in place, whether that’s been through organising crane lifts or refloats using balloons.

C&I considerations
We are not the only ones going through this. I cannot speak for others, although it’s possible insurers may become more risk averse in the Danube, with inevitable knock-on effect for charterers, and ultimately receivers.

However, despite the greater frequency of Danube claims, coastal and inland premiums are defined by NorthStandard’s overall mutual combined ratio performance, which at the last annual renewal stood at a healthy 95%.

Clearly, there are risks of war, and crew cover needs to reflect the exposure faced but this is a market that takes its lead from the volume of business we do to support operations all along Europe’s coastline and inland waterways, as well as niche areas for growth identified elsewhere in the world.

In the immediate term, where trade needs to be supported on heavily congested routes, members are operating in unfamiliar waters, different shipping cultures apply and crews feel understandable edginess, there are plenty of opportunities to showcase P&I services at their best.

This article was written by Nick Taylor, Head of Coastal & Inland, NorthStandard. Taylor is based in London.

The post “With port infrastructure under strain, there can also be disconnects between international operators and local authorities, especially when incidents or accidents occur.” appeared first on InsuranceAsia News.

Today, however, an increasing number of (re)insurers are recognising the value of a diverse workforce, known as diversity and inclusion (D&I), in enhancing their underwriting, risk management and broader operational practices.

Diverse perspectives on risk assessment
One of the main advantages of having a workforce made up of individuals from diverse backgrounds is the wealth of perspectives it brings to the table. Individuals from different experiences and cultures can each offer unique insights into risk assessment – we need to hire people who think, act and respond differently to ourselves.

This diversity allows (re)insurers to understand risks better and evaluate them from multiple angles, with different employees able to identify potential risks that others may overlook due to their unique viewpoints. It also makes for better organisations, beyond just underwriting.

Furthermore, risk does not exist in isolation – it is influenced by an array of factors, from internal market dynamics to global macro events. With the ever-increasing interconnectedness of risk, diverse teams are better equipped to identify emerging risks, challenge data and assess the potential impact.

Whether it might be in terms of understanding the intricacies of a specific industry or navigating cultural nuances in various markets around the world, teams with greater diversity of thought and perspectives will be able to provide a more comprehensive and holistic view of risk.

Driving innovation
Diverse teams have also been described as being the ‘engines of innovation’, and this is unsurprising. Teams with varied backgrounds, personalities and experiences can bring a multitude of thoughts and viewpoints to a discussion, possibly generating new ideas and solutions. For (re)insurers, this innovation may extend to the development of new risk assessment models, analytical approaches and underwriting strategies.

This is an industry in which staying ahead of emerging risks is essential, and the creativity and out-of-the-box thinking that diverse teams generate can be a game-changer, potentially creating innovative solutions to the complex risk challenges the world currently faces.

As risks get more intricate, we are also seeing greater demand for bespoke solutions. Insurance is ultimately about serving customers’ needs, and a diverse workforce can relate to a broader range of customers, understanding their unique needs, preferences and behaviours. This deep understanding can help (re)insurers develop more tailored insurance products and risk management strategies for their clients.

Reducing bias in underwriting
Whether we like it or not, we all have our own  biases which are shaped by life  experiences. Biases related to gender, race, age, or other factors can skew decision making, especially underwriting decisions, leading to inaccurate risk assessments. Having diverse teams and inclusive practices encourages employees to recognise and address these biases head-on.

By fostering an environment where challenging assumptions is the norm, diverse teams can ensure that underwriting decisions are based on merit rather than preconceived notions. The result? Fairer and more equitable risk evaluation that can align with the principles of improved profitability and social responsibility.

Attracting the best and brightest
At the end of the day, (re)insurers are only as good as the people they have in their ranks, and the importance of being a D&I-supportive organisation has become even more critical. It is now an  absolute “must have” in a firm’s ability to attract and retain the best and brightest talent.

With today’s incoming batches of new hires, they are very likely to be attuned to current trends and feel more strongly about social issues. Many younger candidates view a company’s genuine commitment to a D&I culture and initiatives as being a major factor in deciding on their choice of employer, and would readily decline a job offer with a company that they perceive as being a laggard in this space.

(Re)insurers need to do more
Over the years, the (re)insurance industry has made some progress in terms of committing to and incorporating D&I to their business. It is imperative, however, to keep this momentum going. In addition to the financial benefits that research has shown, greater D&I within a company is critical to being able to assess, manage and underwrite risks better.

The industry is also competing with many others for new and upcoming talent and if it does not step up its D&I efforts, it risks losing out in the ‘war for talent’.

This article was written by Mark Newman, Asia Pacific chief executive at Canopius. Newman is based in Singapore.  

The post “Diversity allows (re)insurers to understand risks better and evaluate them from multiple angles, with different employees able to identify potential risks that others may overlook.” appeared first on InsuranceAsia News.

According to the International Air Transport Association (IATA) international traffic climbed 68.9% in March 2023 compared with March 2022. Whilst all markets saw notable growth, these stats were largely led by “a near-tripling of demand for Asia Pacific carriers as China’s re-opening took hold.” The IATA stats pointed to a 283.1% increase in traffic for Asia Pacific airlines, with capacity rising 161.5% and the load factor increasing 26.8 percentage points to 84.5%, the second highest among the regions.

As such it’s business as usual for aviation hull insurers in the region, who are turning their attentions towards claims’ costs. Whilst the underlying safety of the aviation industry has improved markedly over the last 20 or so years, with major losses having become rarer, it is the annual cost of the attritional claims that is now the predominant focus.

New generation aircraft
During the Covid pandemic, airlines accelerated the retirement of older aircraft, inevitably favouring the newer more fuel-efficient types. This has been further reinforced with the return of higher oil prices and the global economic downturn. This trend shows no sign of abating.

Airbus, for example is forecasting that the region will need over 17,600 new aircraft by 2040. The manufacturer expects the “retirement of older aircraft to accelerate, demand progressively more driven by replacement, supporting the industry’s decarbonisation objectives.”

Various issues are at play here. The technology is such that conventional structural repair methods, which are more straightforward and readily available, are no longer applicable to aircraft such as the B787 and A350. In almost all but the most minor damage events, the manufacturer’s support will be required.

These aircraft types have been in service long enough now for us to see that the level of cost increase is in the order of four to six times that which had been experienced on the previous generation of aircraft.

Moreover, with the latest generation of aircraft, the manufacturers have been less inclined to invest in repairs and it is now often the case that components are repaired through the replacement of sub-assemblies, as opposed to the more cost-effective option of repairing those sub-assemblies.

New engine options
The same is true for engine damage caused by Foreign Object Debris (FOD), which accounts for almost half the attritional claims experienced on the global airliner fleet. In some events, the damage will be able to be repaired “on-wing”, in the remaining cases the engine will need to be submitted to a shop which can result in costs running to millions of dollars.

The design of the latest engines offers many of the advantages, one of which is an improvement in FOD resilience. The downside is that the repair of these engines will be concentrated with the manufacturers’ shops and the design is such that high-cost parts will inevitably be scrapped as opposed to being repaired. Experience is low at this stage however we are already seeing examples of the cost of repairing these engines being high.

Risk management
The overall safety record has shown steady improvement although more can clearly be done to reduce the avoidable claim events. The human interface and operational environment will always create scenarios that combine to cause losses, particularly as the industry recovers and resources become stretched.

For aviation insurers, risk mitigation is a primary consideration and, where appropriate, they may take a more active approach to assessing an insured’s risk profile by using specialist organisations to review their operation and make recommendations to reduce risk.

These assessments are almost always beneficial, particularly if they are followed up on.

This article was written by Andy Pickford, Asia Regional Director at McLarens Aviation. Pickford is based in Singapore. 

The post “Whilst the underlying safety of the aviation industry has improved markedly over the last 20 or so years, it is the annual cost of the attritional claims that is now the predominant focus.” appeared first on InsuranceAsia News.

• The ongoing effects of a paradigm created several decades ago whereby economic development was prioritised over environmental protection in developing countries, including some in Asia.
• The fact that in recent decades the region hasn’t experienced a massively destructive environmental catastrophe attributable to a corporation.
• A lack of awareness regarding coverage gaps in general liability and property policies.

In this article, I will elaborate on these ideas and assess the potential implications of “betting against” the possibility of an incident harming the land, air or water.

Differentiated responsibilities
In 1992, the UN Conference on Environment and Development established the notion of “common but differentiated responsibilities” based on “the different contributions to global environmental degradation.” In essence, environmental protection in less developed countries did not need to be as rigorous as in developed countries. That stance helped generate robust economic growth that significantly improved people’s living standards. It also contributed to widespread degradation in many places of the air, land and water. For instance, as South Korea rapidly industrialised, the air quality around Seoul worsened considerably.

These conditions prompted some of the region’s governments to enact more robust environmental protection standards and to step up their enforcement efforts.

Nonetheless, the view that economic development takes precedence over environmental protection hasn’t fully eased in some sectors of the business community. And environmental sustainability doesn’t feature prominently on the management agenda of some companies in Asia.

(However, the exceptions to this broad generalisation are growing as more and more Asian companies adopt and emphasise ESG principles in their operating models.)

This stance is reinforced by the absence of compulsory environmental liability insurance in most jurisdictions. Currently, such coverages are required in South Korea and Vietnam and only for selected industries like oil and gas. Moreover, the insurance markets in many Southeast Asian countries aren’t as well-developed, making it more difficult for companies to secure this type of specialised insurance.

Standalone EIL policies
Another factor contributing to the low take-up rate is that in recent decades there has been only one devasting environmental catastrophe in Asia caused by a private company, the 1984 cyanide gas leak in Bhopal, India. And despite widespread public anger after the Bhopal disaster, environmental protection laws or regulations were not strengthened.

In contrast, there were several highly injurious environmental incidents in Europe and the U.S. in the 1970s. These led governments to enact and more rigorously enforce stronger laws and regulations. That meant that industrial companies and property owners/developers in these lands faced a greater probability of being held liable for an environmental accident and were obliged to take more responsibility for protecting the environment.

These developments, in turn, resulted in the creation of an EIL insurance market for mitigating environmental risk. In fact, one of AXA XL’s predecessor companies was one of the first insurers to provide EIL coverages in the U.S. Today, AXA XL offers standalone EIL policies in all the major markets, including Singapore, China and South Korea, covering businesses against claims for bodily injury, property damage, clean-up costs and business interruption. We also offer global EIL programs with locally compliant policies in 50 countries in all regions of the world.

Significant coverage gaps
When an incident damages the land, air or water, clients could discover that some losses aren’t covered by their General Liability or Property policies. The most significant coverage gaps are:

• General Liability policies cover “sudden and accidental” events like fires or explosions but typically exclude third-party losses caused by gradual occurrences over time.
• Property policies usually don’t cover first-party losses (property damage and business interruption) caused by contamination or mould, including the associated clean-up costs.

For example, a chemical plant leaked styrene gas that sadly caused several deaths. It also contaminated the air and land in surrounding areas. The leak was caused by deficiencies in the cooling system, leading to a pressure build-up and, ultimately, uncontrolled release of the styrene gas. If the ongoing investigation finds that the company could have monitored the cooling system more closely and that the incident wasn’t purely ‘’accidental’’ then it is likely that the company is not covered for any compensation it must pay for the pollution under its General Liability policy. EIL policies, on the other hand, are designed to cover such liabilities.

An example of the second gap is a claim from a real estate client that owned a building where excessive condensation in the air conditioning system caused mould build-up affecting 85 residential units. This type of claim isn’t uncommon, especially in countries having four seasons. Under most Property policies, this loss would have been excluded. Fortunately, this client had an EIL policy which covered the remediation costs.

Betting against or insuring against?
Industrial companies, property owners and developers exposed to environmental liability risks essentially have two options: either “bet against” or “insure against” the possibility of an incident damaging the air, land or water. For the reasons outlined above, many companies in Asia have chosen the former. Is this stance appropriate? And sustainable?

As a claims manager, I’m not in a position to judge that; my role is to help clients resolve covered claims promptly, efficiently and fairly. Nonetheless, many nations that haven’t already done so are moving to implement new environmental laws and regulations, typically with “polluter pays” provisions. Many are also stepping up enforcement efforts to protect their air, land and water. And in today’s social media-saturated environment, the reputational risks associated with an environmental incident shouldn’t be overlooked. Although these indirect costs aren’t insurable, they can be substantial and are increasing exponentially.

Also, since prevention is vastly less expensive than mitigation, clients with operations in Europe and the UK could benefit from AXA XL’s new environmental sensitivities tool. Briefly, it produces a detailed and consistent environmental assessment of every location within a client’s portfolio based on the latest data from the most sophisticated sources. Among other benefits, this capability enables clients to prioritise the sites where the environmental exposures are most significant.

A final note: I recognise that readers may have different points of view about some of the issues I have highlighted in this article. Given the complexities associated with this topic, that is certainly understandable. If so, I encourage you to add your perspectives to this article’s link on AXA XL’s LinkedIn page.

Jui Lien Chung is a claims manager for Casualty and EPC. He has 20 years of experience managing claims in the Asia region. He has a degree in Economics from the National University of Singapore and a law degree from the University of London. Jui Lien joined AXA XL in 2014 and is based in Singapore.

This article was written by Jui Lien Chung, Claims Manager, Casualty and EPC, AXA XL, who can be reached at chung.juilien@axaxl.com.

The post Why are take-up rates for environmental impairment liability insurance low in Asia? appeared first on InsuranceAsia News.