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In 2023, several record US$1 billion plus loss nat cat events occurred in New Zealand, including Cyclone Gabrielle and the Auckland Anniversary floods in January and February, have been followed by huge rainfall losses in China, with Beijing seeing its highest rain total on record, and Typhoon Doksuri causing over a US$1 billion in insured losses. And Special Administrative Region Hong Kong issued its longest black rainstorm signal on record causing hundreds of millions of dollars of damage – although the tally has yet to be formally added up.

As the planet warms the atmosphere is holding more vapour meaning larger downpours and helping is helping to create potentially larger and more powerful typhoons.

Heat records have also been shattered across the region, including in Japan and China, as the world turns from three years of La Niña – which brings wetter conditions – to the drier and usually hotter El Niño weather system.

Providing an introduction to the panel, Gianfranco Lot, chief underwriting officer, P&C reinsurance, Swiss Re, said: “The reinsurance sector sees climate risk as a key threat. The APAC region is most frequently affected by nat cats, accounts for almost half of global protection gap. The industry is also set to be not responsive enough.” Lot added: “It’s important to maintain discipline to create data standards and understand that data definitions. We will be able to protect more people, businesses, the public sector and societies.”

Warmer than ever
Professor Benjamin Horton, director of the Earth Observatory of Singapore (EOS), which is based at Singapore’s Nanyang Technological University (NTU), returned to SIRC for the first time since 2018 with spome worrying observations. The EOS was founded in 2008 to better understand geohazards and climate change.

Horton said that land and, in particular, ocean temperatures, are above previous records this year and spoke about a summer 2023 marine heatwave in the Caribbean which has seen every coral bleached. Also, he talked about the wildfires in Canada, when over 6,500 fires burned the largest amount of land in the country’s history and saw smoke blow all the way to New York City causing a pollution emergency. He described humanity’s impact on the climate as “staggering”.

Horton added: “Climate scientists are increasingly worried that that climate is getting away from us. Int the last 15 years it seems we are on an exponential curve in terms of the planet warming.”

2023 has seen the return of El Niño after three years of La Niña. If El Niño keeps going, 2024 will be “off the charts” for the climate, Horton noted.

During the discussion, Winnie Tan, senior vice president for sustainability at Great Eastern Holdings, posed the following questions to the market: “Is your company doing less harm and do you have your own green path? What more good can you do? Are you helping really fragile clients to transition? What risk mitigation behaviour can you help your clients take on?”

Modelling
Dr Jayanta Guin, executive vice president & chief research officer, Verisk Extreme Event Solutions, said: “We’re not big fans of using the term secondary perils as they’re causing billions of dollars of losses. We started modelling floods in 2007, hurricanes in 1987. Look at the amount of flash flooding that happened just this year”.

Guin added: “From a risk modelling point of view, we have to develop solutions from an engineering point of you, where scaling is a problem. When we build a model, we look into five to 10 years when we cannot have a single weather event that have not been looked into. This is the view of risk with or without climate adjustment – this is the direction we’re targeting but it’s not available everywhere.”

Vipul Shetty, head of energy transition, APAC, at Howden Specialty, said: “We have spent decades doing specialty, marine insurance etc. We have to absorb knowledge about climate change and pass it to actions.”

Shetty added: “It’s not a competition – as in your premium against mine – everyone can benefit.”

Dr Sibylle Steimen, managing director, advisory & services at Allianz Re, said: “We have to come up with much more models. We need to have a model-based reflection. We need the models, and to trust those models. Some perils were just not modelled.”

Steimen said: “We price for the risk in the current climate, not what it will be in 2050. The models used for pricing have to reflect today’s climate. In future, we will have to give an outlook for the climate, if they want to stay in operations for 30 years, the risk profile will change. Climate change is here to stay, and we have to act and take it into decision-making processes. Nag your clients every time you see them and make them do it.”

Meanwhile many eyes in APAC’s reinsurance market will be turning to Australia to follow what is expected to be the worst wildfire season since the Black Summer of 2019/20. States at threat include New South Wales and Queensland. And in an increasing environment of climate uncertainty around the world, there are still around eight weeks left in 2023 to cause a few surprises to the market and to possibly impact the 1.1.2024 renewals. And as we have seen in recent years, the event may not even need to happen in APAC.

As ever there is plenty of work ahead to grapple with the growing issue of climate change.

The climate change panel discussion took place in the morning on Wednesday, November 1 at the SIRC 2023 in the Marina Bay Sands. For more InsuranceAsia News (IAN) coverage of this year’s SIRC click here.

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India is transforming at an unprecedented pace and scale – a change that signals growth with the core principles of sustainability. Morgan Stanley says India is set to overtake Japan and Germany as the world’s third-largest economy by 2030. London-based consultancy CEBR predicts that India will be the third US$10 trillion economy by 2035. To achieve this, India will have to implement 4 D’s – democracy, demography, diversity and digitisation.

One key element that’s been discussed extensively is energy transition. India pledged to achieve net-zero emissions by 2070 at COP26 and achieved its NDC (Nationally determined contributions) target of 40% coming from non-fossil fuels by 2030 in 2021 itself. As of March 31, 2023, the country’s power sector is growing at 8.87% per annum and 43% of the energy generated in India was from non-fossil fuels. Another interesting fact to illustrate this “pace” of change is the average per capita consumption of electricity in the country is about a third of the global average, thereby highlighting the “scale” of opportunities in India.

Renewable energy growth
India has the fourth largest installed renewable capacity in the world. In the last five years, about 66,000MW of capacity has been added, more than 90% of which is from renewable energy. India’s renewable energy capacity has grown exponentially in the last seven years. Since 2017, the additional capacity rose to 71%, specifically from renewables, dominated mainly by solar projects. India has the lowest levelized cost of energy (LCoE) renewable power in the world.

About 26% of India’s total solar capacity was added in FY 2022 and tariffs dropped 63% 2021, resulting in affordability.

The country has set an ambitious energy transition target of reaching 500GW of non-fossil fuel power capacity by 2030 (currently at 167GW renewable + hydro + nuclear). The government is also targeting to achieve 50% of electricity requirements by renewables with the aim to lower the carbon intensity of the economy by more than 45% by 2030.

India launched the National Green Hydrogen Mission in January 2022, with the intended objectives of becoming the leading producer and supplier of ssgreen hydrogen in the world, reducing the fossil fuel import bill of more than Rs 1 trillion (US$12 billion) and reduction of nearly 50 MMT of annual greenhouse gas emissions.

The potential is enormous with rapid pace and government-backed ambition as well as their commitment to make this transition successful.

Transition to renewables
On the micro side, solar power dominates the “transition-to-renewables” story. Millions of homes have benefited from the decentralisation of solar based applications for cooking, lighting and homes turning into solar power stations across India.

With rising electricity costs and increasing awareness about sustainability and environmental impact of conventional electricity, many homeowners are turning to solar panels for their energy needs. Typically, about 10-15 panels will generate about 3-5 KW of power enough to meet a small homeowner’s needs depending on the amount of sunlight, as well as the efficacy of the panel.

In 2021, the Indian government launched the solar rooftop programme. Several states took up this programme to reduce their reliance on imported power. Registered domestic users were given subsidies along with technical guidance to embrace rooftop solar.

Aside from this, there are similar programmes for biogas, waste-to energy generation, wind, research and fellowship schemes to provide further impetus to this transition.

Mitigating climate change
Donning the mantle of leadership at the G20 this year, India’s priorities are energy and climate change mitigation. As India strides into the renewable journey, it does so with a millstone around its neck. The main factors slowing this growth could potentially be:

Heavy dependence on thermal power. There has to be a clear coal step-out plan and a schedule for the retirement of existing coal capacities.

Struggling state distribution companies. Renewable power contributes only 12% of power generation despite having a 26% share in installed capacity. Because renewable power is also intermittent and variable, there is no steadiness in availability. Hence, it’s a challenge for state distribution companies that are struggling and need guaranteed supply. This is due to the fact that they are unable to manage the flow of thermal power or improve forecasting abilities.

Several private companies have invested heavily in the renewable energy sector. Others have made ESG commitments to increase the share of renewable power in their portfolios. However, all these efforts can be dampened due to technological challenges at state distribution companies and their need to maintain their market share.

Availability of capital. Funding is largely from the private funds and private pools of capital. There are several government subsidises available but if cost of financing for such growth increases, it will be passed down to consumers reducing attractiveness of the transition.

State-wise variance in open consumer adaptability. It is no secret that every state’s agenda can vary from that of the central government. In order to build a stable domestic supply chain, all stakeholders must come together in lock-step to move forward. A single national synchronised interstate grid is key to sustainable scalability.

If you flip the story, the above factors could potentially stimulate providers for further growth. It has been proven by the tremendous growth in renewable energy companies in India:

Adani Green, which has the largest operating renewable portfolio in India; Tata Power Solar is the largest integrated solar power player in India; Azure and RENew are other companies at the forefront of this solar growth story. National Thermal Power Corporation of India – the public sector giant – also focuses on this area through NTPC Renewable Energy, a fully owned subsidiary.

The company announced that it has added more than 1.3 GW of renewable capacity in FY 2023. Reliance Industries, the behemoth of the energy sector in India, has committed to invest US$8 billion in this sector and already forged key technology partnerships which will also differentiate its position in the international energy market.

Reliance reckons that renewable energy will replicate its success in telecom within the decade. Some of these companies have gone a step further focusing on hybrid solar (combining wind and solar generation) and also floating solar projects (where no land is required for installation).

So why is it exciting for insurance?
The answer is intuitive. All these renewable energy projects definitely need insurance and investments in order to achieve growth both operationally as well as the construction side. As the need to mitigate the traditional and/or emerging risk increase, it will lead to higher demand for insurance – either traditional or parametric. About 59 solar parks of aggregate capacity 40 GW have been approved in India.

Solar Parks in Pavagada (2 GW), Kurnool (1 GW) and Bhadla-II (648 MW) are included in the top five operational solar parks of 7 GW capacity in the country.

The world’s largest renewable energy park of 30 GW capacity solar-wind hybrid project is under installation in Gujarat. A floating solar project in Omkareshwar reservoir is set to be the world’s largest floating solar power plant with planned capacity of 600 MW. Solar canal pilot project in the state of Gujarat is in the pipeline and these are just a few to demonstrate the burgeoning activity.

As investment in manufacturing activities heighten, the demand in the ancillary industries will increase as well. Since this is a new space, with limited loss history, it requires nimbleness and innovation to forge a meaningful presence.

Allianz is here
At Allianz, we emphasise that our clients treat ESG as a significant part of their growth strategy. Our key partners in the Indian market are highly focussed on ESG and constantly innovate solutions in this domain, not only with Allianz, but with several other top tier reinsurers as well. Solutions vary from insurance for erection/construction, operation, solar panel warranty, package policies for solar panel installation and even solar energy shortfall insurance.

Thus as we worship the Sun God, we are also prepared for lack-of-solar cover, which insures change in irradiation to smooth revenues and reduce volatility.

There are also political risk insurance solutions to protect investors against financial losses on their equity investments due to a variety of non-commercial risks. Environmental risk insurance, liability insurance, damage coverage, non-damage protection, performance guarantee and even marine transit as well as cyber will see an uptick in demand. Each of these is a part of a puzzle that comes together to provide financial protection and address technological challenges that stand in the way of adaptability both for industrial and retail renewable energy.

While providing an accurate growth rate for reinsurance is a challenge, it will certainly outpace the growth rate of the India insurance industry, which is growing at +12%, by a healthy margin. In many of our cedents’ portfolios, Allianz Re is already seeing a greater focus on this segment and as our clients make this transition, we would like to be their partner in this journey.

We seek to provide expertise apart from capacity and set targets along with our clients. Pushing cedents to reduce dependence on conventional sources is obvious but not enough, we have to assist them through that learning curve and be ready to iterate as the journey evolves.

Sonia Rawal P&C and Agriculture Client Manager, India Email: Sonia.rawal@allianzre.com

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Agriculture remains the backbone of many Asian economies with 70% of Asia’s population living in rural areas and more than a third involved in agriculture.

However, farmers in the region face numerous challenges, including extreme weather events, natural disasters, pest outbreaks, livestock epidemics and diseases that threaten food security and the stability of local communities.

Strengthening agricultural productivity in Asia and the Pacific is crucial to reduce poverty, end hunger, improve nutrition and support development. In response, many countries in Asia are turning to agriculture insurance to mitigate the impact of these risks to ensure that farmers have the resources they need to continue producing food for their communities. It has become an important tool to provide a safety net to farmers, to help them adopt better practices and in many cases shift cropping patterns.

China and India are two of the most important agriculture-producing countries in the region. To put things in perspective, more than one third of the €35 billion (US$37 billion) estimated global agriculture insurance premium in 2021 was from Asia Pacific.

Protection gap of agriculture insurance in Asia
Agriculture insurance in China started in the 1950s, and in India, in an ad-hoc, scattered away, since 1970s. However, its development initially slowed down due to unfavourable social and economic conditions. In the 2000s, both governments began to support and promote agriculture insurance programmes, which led to more widespread adoption amongst farmers. As of 2003, the penetration rate for agriculture insurance was less than 0.05%.

By 2019, the penetration levels of both these countries reached the 40% range. However, there is still a wide section of the agricultural sector that remains unprotected.

Today, China has become the second largest agriculture insurance market globally, and India the third. For China, the original premium income has raised from US$700 million in 2007, when government resumed subsidy on agriculture insurance, to US$17 billion in 2022. Over 70% of the major crops and livestock are covered by insurance. In India the numbers are smaller from US$100 million in 2000 to US$4 billion in 2022, but from a reinsurance perspective the two markets are comparable in premium volume.

Yet, the intensity of the coverage remains low. As of 2021, the sums insured per mu for grain crops like corn, wheat and rice range from Rmb 300 to 400, which is translated to US$650-850 per hectare. However, the estimated total cost for these grain crops, depending on crop types and region, ranged from US$1,800 to US$2,500 per hectare. Some reports have estimated that the protection gap for China’s agriculture sector to be around US$200-250 billion, indicating the difference between the total economic losses related to agriculture sector caused by natural disaster and the insured loss. The same protection gap for India is in excess of US$50 billion reiterating the huge supply demand bottlenecks in the two large economies.

Protection gap is particularly significant for small-scale farmers, who often lack access to insurance or are unable to afford it. In response, both governments have taken steps to:

• increase the availability and affordability of agriculture insurance by strengthening institutional capacity through subsidies;
• improve quality and efficiency of service delivery;
• strengthen risk-sharing mechanisms by promoting reinsurance to support the insurance companies;
• enhance financial inclusion;
• strengthen consumer protection.

However, it remains a challenge to close the protection gap fully.

Challenges
There are several factors that inhibited the growth and development of agriculture insurance in these two regions

1. 1. Access to insurance
   (i) Lack of awareness: Insurance still remains a “push” product rather than a “pull” product. Even when agriculture insurance is free or compulsory, most farmers are not aware of their entitlement when faced with losses.
   (ii) Distribution: The low presence of insurance companies and intermediaries in these areas have made it difficult for farmers to purchase insurance.
3. 2. Cost and Complexity of Insurance: Both these aspects are significant barriers to adoption, particularly for small-scale farmers who may not have the resources to pay for insurance. In addition, limited financial literacy and lack of awareness of insurance products have created further obstacle.
5. 3. Untimely settlement of claims: For a farmer that lives on season-to-season income, and often borrows money to fund the production, timely settlement is key.
7. 4. Lack of data: Accurate and up-to-date information is critical to the success of agriculture insurance. However, in many countries in Asia, there is a lack of reliable data on crop yields and other factors that impact food production. This makes it difficult for insurance companies to accurately assess risks and develop effective insurance products.

Allianz Re’s role and strategy
Allianz is a global financial services company that offers agriculture insurance as part of its portfolio of insurance products. The company provides insurance coverage for a range of agriculture risks, including crop damage caused by natural disasters, disease outbreaks and other factors that can impact food production.

Allianz Re, as the centre of competence for agriculture insurance of Allianz, is committed to promoting the use of technology in agriculture, and is actively working together with farmers, governments and other stakeholders in developing and implementing new technologies and customised products to meet the needs of the agriculture sector, as well as promoting food security and sustainable agriculture in emerging markets.

Agriculture accounts for 10% of the gross premium income of Allianz Re third-party businesses. Out of the four main market pillars, Asia accounts for two, China and India – which is in line with the market developments in this region. This reflects on how Allianz Re has positioned it’s strategy in the agriculture business globally.

Outlook for agriculture insurance in Asia
Agriculture insurance has a few overarching trends that will dominate in the future. However, the core of it all is the need to transform digitally at a faster rate.

The value chain can be divided into five parts:

• Remote sensing/monitoring of standing crop
• Decision support systems in terms of pricing analytics, forecasting
• Digitisation of platforms within insurance companies/banks that integrate sales, policy administration and claims
• Technology for on-ground assessment
• Precision farming-based technologies

Digital technologies help to generate tangible value across the crop insurance value chain. This value chain aids in improving risk assessment, reducing operational expenses and helping the farmer to reduce his financial burden.

India and China have their own distinct models to digitise their economies and both governments have been actively promoting the use of new technologies in agriculture insurance to further close the protection gap.

For both countries, remote sensing is being widely used in the agriculture sector to improve the accuracy and efficiency of insurance claims. Many of the nationwide insurance companies and agriculture insurance specialists leverage this technology for a comprehensive view as well as to obtain real-time status of crop conditions. Big data and artificial intelligence (AI) are also being promoted by many insurers to analyse historical weather data and predict the likelihood of future crop damage, allowing them to adjust agriculture activities to reduce potential losses.

In China, digital platforms and livestock biometrics have largely improved the accuracy and efficiency in livestock insurance for both policy issuing and claim payouts. In some cases, this technology is also being used for real-time tracking and managing the health as well as movements of livestock.

In India and China, mobile penetration is substantially higher. Mobile technology has been demonstrated to be powerful in improving accessibility to insurance for small-scale farmers. In India, where land holdings are fragmented and the rural infrastructure still has a long way to go, mobile phone is the tool for inclusion into the financial framework. Most Chinese and Indian insurers now have user-friendly mobile applications for the farmer to purchase insurance, file claims and receive payments, making the process more convenient and accessible.

The central governments are also devoted to further deepening the penetration of agriculture insurance. They have actively been aiding the agriculture industry by stimulating the sustainable development from all aspects, including but not limited to, implementing advanced technologies, conducting pilot studies to push for the total cost to be covered for the grain crops and continuously providing support to farmers. With the increased awareness of insurance and easier accessibility of products, agriculture insurance will achieve even more significant development in this region.

At Allianz Re, we will continue to be committed to provide our support to secure our customers future. With 130 years of history, the aim of Allianz Group as far as agriculture business is concerned is to build a globally diversified and sustainable portfolio. We provide reinsurance protection to both our group companies and to third-party customers.

With climate change and global warming, diversification and sustainability through reinsurance has become more important than before to manage volatility. At Allianz Re, we are focusing on three main technological areas – monitoring, forecasting and product development. We will continuously work with our partners in China and India to elevate our global expertise in these areas to the stakeholders.

Sonia Rawal P&C and Agriculture Client Manager, India Email: Sonia.rawal@allianzre.com

Yu Qingyau P&C and Agriculture Client Manager, China Email: Qingyao.yu@allianzre.com

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