Opportunities for insurers to cover risks from cyber attacks, natural disasters: Tharman
Deputy Prime Minister Tharman Shanmugaratnam cites growth areas in the region that insurers can tap, including providing insurance solutions for cyber and natural disaster risks as well as investing in infrastructure.
By Nicole Tan
Posted 13 Jun 2016 21:54 Updated 13 Jun 2016 22:06
SINGAPORE: There are opportunities for insurers in financing infrastructure and providing insurance for cyber attacks and natural disasters, despite the challenge of persistently low interest rates, said Deputy Prime Minister and Coordinating Minister for Economic and Social Policies Tharman Shanmugaratnam.
He was speaking at the International Insurance Society Global Insurance Forum on Monday (Jun 13).
Mr Tharman cited growth areas in the region that insurers can tap, including providing insurance solutions for cyber and natural disaster risks, as well as investing in infrastructure.
To enable long-term investments, such as for infrastructure, Mr Tharman said the Monetary Authority of Singapore is seeking to modify its risk-based capital framework for insurers. He said the next public consultation on this will be held at the end of the month.
Mr Tharman also noted that the economic cost of natural disasters is growing but that the take-up of catastrophe insurance in Asia has been "woefully low". The Deputy Prime Minister pointed to a data gap: "The industry needs good data on the frequency, location and economic impact of natural disasters, so that insurers and reinsurers can price risks adequately. So we have had a limited supply of insurance coverage, that has itself led to higher cost of protection, which in turn discourages demand for insurance against catastrophe risks."
Likewise, Mr Tharman noted that the data needed for the efficient underwriting of cyber risk is "weak". He said: "We need to strengthen collaboration between the industry, government and academia to build reliable databases and analytical tools to enable the efficient underwriting of cyber risk."
ACTIVE INVESTMENT MANAGEMENT 'NOT ALL IT HAS BEEN CRACKED UP TO BE'
As populations age, individuals need to save more for a longer retirement. Meanwhile, slower economic growth is weighing on investment. Mr Tharman said higher savings and lower investment suggest that long-term real interest rates are likely to stay low for quite some time to come. He added that this poses a challenge for insurance and pension funds.
He said: “It hits you on both your assets and your liabilities. It means a lower return on your assets. And it pushes up the value of liabilities because the discount rate has gone down. It is not a temporary challenge but a long-term challenge.
"As life expectancy goes up, liabilities will be pushed out further, and the gap in maturity between your liabilities and your assets is likely to grow. This mismatch in durations, together with low interest rates, means we have a growing problem."
Going forward, Mr Tharman said fundamental reforms are needed to address the challenges, such as making the workplace more attractive to older employees.
As for the finance industry, he said there should be a shift towards passive investment management, away from active management which has proven costly for ordinary savers.
Mr Tharman said: “Active management is not all it has been cracked up to be: it has not proven its worth for most ordinary savers preparing for their retirement. We do have to move towards a system, in a whole range of countries, of helping people save for the long term through passive investment funds, and pool savings to avoid fragmentation and excessive marketing costs.”
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- wong chee tat :)
