Insurance Meet discusses way forward amid growing climate risks

Kathmandu, June 9

Finance Minister (FM) Dr. Prakash Sharan Mahat said that it is imperative to strike a balance between safeguarding the interests of policyholders and encouraging insurers to embrace technological advancements and explore new product offerings.

"In the pursuit of building resilience in our insurance sector, collaboration and innovation are paramount," he said while addressing the inaugural session of the three-day Asian Insurance Meet (AIM) 2023 that kicked off in the Capital on Thursday.

In the first day of the conference, regulators and supervisors of the insurance sector from various countries from Asia and the Pacific region discussed issues and challenges in the insurance sector stemming from climate change and natural disasters and way out from them.

Dr. Mahat formally inaugurated the conference, participated by more than 400 delegates from more than two dozen countries from the region, on Friday morning. The AIM 2023 is being organised by the Nepal Insurance Authority (NIA) in partnership with International Association of Insurance Surveyors (IAIS), Asian Development Bank (ADB) and Access to Insurance Initiative (AII).

According to him, regulators, insurers, reinsurers, and brokers must work hand in hand to develop robust risk management frameworks, enhance supervisory mechanisms, and promote a culture of innovation.

Additionally, fostering financial literacy and increasing insurance penetration among the population are crucial steps toward building a resilient life insurance market, he maintained.

Stating that in the face of emerging risks, the role of regulators has become pivotal, the finance minister said that regulators must proactively adapt their frameworks to address the changing risk landscape, while ensuring consumer protection, promoting market stability, and encouraging sustainable growth.

"Effective regulation requires a harmonized approach, sharing of best practices, and mutual learning among regulatory bodies across Asia and throughout the world," he said.

"Emerging risks like disasters, economic volatility, cyber threats and pandemics not only pose challenges to the stability of insurance institutions but also impact the financial security of individuals, society and businesses across the region," he added.

According to him, insurers and reinsurers, being the backbone of the insurance industry, need to strengthen their risk management practices and underwriting capabilities. They need to be innovative in response to the converging challenges of natural disaster, social exclusion, climate change and long-term finance.

FM Dr. Mahat recommended embracing advanced analytics, artificial intelligence, and machine learning, insurers can enhance their ability to assess risks accurately and improve their claims management processes.

"Collaboration, innovation, and a proactive regulatory environment are the key drivers of success. By working together, we can create an insurance industry that not only protects the interests of our citizens but also contributes to the sustainable development of our nations," he said.

Chairman of the NIA, Surya Prasad Silwal, emphasised on the importance of risk-based supervision.

"Robust regulatory frameworks and effective supervision are critical to maintaining financial stability and protecting policy holder’s interests," he said. By working together, the regulators and insurers can leverage their collective expertise and resources to develop robust risk management practices and implement effective supervisory measures, he added.

According to him, insurance has always been prioritised in the fiscal policy of the government in Nepal. Providing subsidy to agriculture insurance, encouraging micro and inclusive insurance, and applying innovative policies have been the priorities of the government.

Silwal also maintained that climate change has emerged as an urgent global concern, and the insurance industry has a crucial role to play in addressing its impact.

Insurance supervisors need to collaborate with the industry stakeholders to develop frameworks and strategies that effectively manage climate risks and support sustainable development, he said.

Likewise, Arup Chatterjee, Principal Financial Sector Specialist of the ADB, said that by promoting public–private partnerships, insurance can help absorb shocks and support real economy actors by protecting debt-service exposure against climate change induced events and reducing default rate, helping maintain creditworthiness.

"Insurance or insurance-linked mechanisms – including inclusive insurance – by providing financial compensation or shock-responsive social protection, can hasten recovery and boost resilience," he said.   

However, insurance becomes less attractive for high-risk households or farmers when premiums reflect the underlying risk. Balancing premium affordability and risk-reduction incentives is thus important and suggests more open and transparent engagement with the various stakeholders in risk management, said Chatterjee.

Chunky Chhetry, President of Nepal Insurer's Association, said that insurance is considered a major tool for the resilience by the government after the catastrophic event of 2015 earthquake.

"Before earthquake only 1 per cent property was covered by insurance which increased to 3.67 per cent in the post-quake scenario," he said.

Change in perception was the result of prompt claim payments. "There was an increased awareness and readiness to buy an insurance policy. The reinsurance companies were also flexible in terms of making settlements," said Chhetry.

Dip Prakash Pandey, CEO of Shikhar Insurance Co. Ltd., said that climate change guidelines have been introduced and capital size for insurance companies has been increased in order to facilitate growth and development in the sector.

Likewise, Manuela Zweimueller, Head of Implementation at the IAIS, said that there is a lot of expertise in the insurance industry to tackle the climate risks.

According to her, there is a broad consensus that climate change is a source of financial risk that impacts insurers, both in their roles as underwriters and investors.

The conference will run till Saturday. 

 Published in The Rising Nepal daily on 9 June 2023.