Q&A: Global warming is creating uncertainty in valuation of physical assets

September 26 2024 by

Chelsea Jiang, Axa’s chief technical and innovation officer, general insurance for Greater China, shares her views on parametric, how companies can guard against convective storms, and HK’s role in narrowing China’s protection gap.

IAN: Axa has in August debuted in HK a heatwave parametric cover for HK and Macau outdoor workers. The product design involved 150 experts globally. Could you share with us what is the most challenging part in the design of this product?

Chelsea: The technical expertise in climate modelling has been built within Axa over decades, starting with natural catastrophes and in more recent years expanding to 50+ climate change factors with the establishment of Axa Climate. As our global climate is changing every day and unpredictability of weather especially temperature and rainfall become more volatile, our technical and scientific teams need to strive to update our datasets and models constantly.

We are proud to leverage Axa’s technical expertise to provide such purposeful insurance protection like the Heatwave Parametric Insurance in Hong Kong. Whilst the challenge in modelling the projecting future weather patterns will likely remain very steep, we strongly believe in the investment and dedication into these areas will provide better protection for all of our customers.

IAN: The HKMA has in December 2023 released a research paper which indicated that global warming can meaningfully lower housing prices (due to more severe typhoons, inundating risks), ultimately posing a risk also to the banking sector due to devaluation of the collateral value of banks’ mortgage loan assets. How are insurers helping to mitigate such risks to properties? 

Chelsea: Indeed, the volatility and severity of climate phenomenon due to global warming is creating uncertainty in valuation of physical assets and disruption to everyday operations. We have had feedback from several banking institutions and valuations companies which highlight the importance of taking into consideration climate exposures and risks when conducting their credit and valuation assessments.

In some areas of the world, we can see that certain types of natural disaster insurances are becoming unavailable, such as those for wildfire, flood etc.  This is creating uncertainty in other parts of the financial services value-chain.

“We believe that clear understanding of risk, then strategic planning for adaption and mitigation actions is the best approach to address secondary perils.” Chelsea Jiang, AXA

We believe that clear understanding of risk, then strategic planning for adaption and mitigation actions is the best approach to address these risks. We are here to provide the full suite of services from climate risk assessments, strategic and engineering adaption/mitigation actions recommendations and insurance transfer offerings, to help customers navigate this complex and ever-changing area.

IAN: For the first half of 2024 natural catastrophes already caused direct economic loss of CNY93.2 billion (US$12.8 billion) in China. What role can Hong Kong play in helping to reduce the protection gap in China?

Chelsea: Hong Kong’s role as risk management centre of expertise for Greater China is very clear and valuable in this area. With the wealth of knowledge accrued and available in the Hong Kong insurance industry, we are well positioned to provide risk analysis, alternative insurance solutions expertise to the Greater China region.

With the abundance of international insurance and reinsurance capacity available in Hong Kong under a well-regulated capital regime, we are able to help the Greater China region to better manage these catastrophe risks.

IAN: Global warming is leading to more severe convective storms which seem to be more severe and last for longer. How is Axa advising corporate clients on how to mitigate such risks posed to their businesses? 

Chelsea: We are utilising our key assets in risk engineering, Axa Climate and insurance to provide customers with scientific insights as to their current and future climate exposures. We are able to conduct in-depth climate risk assessments and specifically highlight the risk grading of each peril/factor at an asset level.

In addition to providing clients with a deep understanding on their exposures, we also advise on risk mitigation and adaptation measures with quantifiable costs and results so that clients can prioritize and investment in these improvement areas. From an insurance perspective, we are working with clients on helping them to realise the impacts of these mitigation and adaption actions in their insurance programs through specifically designed insurance coverage and benefits.

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