Climate Change and Re-Insurance: The Human Security Issue
SC – SEA
Prof. Anis Bajrektarevic & Carla Baumer
Contents
1
Introduction. 1
2
Insurance- Development and Purpose. 3
2.1
Insurance Origins. 3
2.2
Insurance and Ideology. 3
2.2.1
Islam and Insurance. 4
2.3
Risk. 5
2.3.1
Probability. 5
2.3.2
Types of risk. 6
3
Insurance. 6
3.1
Protection against Risk. 6
3.1.1
The Law of Numbers. 7
3.1.2
The insurance market. 7
4
Re-insurance. 8
4.1
Risk Management in Reinsurance. 8
4.1.1
Underwriting. 9
4.1.2
Asset management. 9
4.1.3
Capital management. 9
4.1.4
Principles of Insurability. 9
4.1.5
Further Considerations- Capacity and
Accumulation. 10
4.2
Ethics and Fairness. 10
5
Natural Disaster Insurance. 10
5.1
Natural Disaster Trends. 11
6
Climate Change. 12
6.1
Climate Change and Insurance. 13
6.1.1
The implications for reinsurance. 14
6.1.2
Country Risk Management. 14
7
The South East Asian Insurance Market. 15
7.1
Climate Change in South East Asia. 16
7.1.1
Climate Change and Small Islands. 17
7.2
Disaster Prevalence in South East Asia. 18
7.3
Mainland South East Asia. 19
7.3.1
Case: The Mekong Region. 19
7.4
The Archipelago of South East Asia. 20
7.4.1
Case: Indonesia. 20
7.4.2
China. 20
7.4.3
Japan. 22
8
Climate Change and the Reinsurance
Industry. 23
9
Human security. 24
9.1.1
Environmental and Social sustainability.
24
9.1.2
Development and Disaster Risk Management.
25
10
No-Go Zones. 26
10.1
No-Go zones in South East Asia. 27
10.1.1
Implications and
Vulnerabilities of No-go zones on the South East Asian Region. 28
10.1.2
Migration. 28
10.1.3
Implications for
Australia and New Zealand. 29
10.1.4
Welfare. 30
10.1.5
Security. 32
10.1.6
Reinsurance v
government. 33
10.1.7
International
Community and Foreign Aid. 33
11
Conclusion. 35
11.1
Bibliography. 37

1
Introduction
Climate change, its existence, causes and
effects, has been disputed by researchers, academics and policy makers.
The given degree of international consensus varies greatly between those
most affected by changes to climatic conditions in contrast to those who
are estimated to only experience a limited effect. Controversially, it
can also be claimed that some regions are set to gain from climate
change such as the polar region nations currently disputing resource
claims and logistic networks. In analysis of available data, research
suggests the increased intensity of storms, hurricanes, cyclones,
flooding, droughts, bushfires, mudslides and hailstorms along with
increased temperatures, rising sea levels, and changing to pressure
systems. With climate change as a global phenomenon, not isolated to a
certain region, the interest of stakeholders remains strongest in those
with the ‘smallest’ voice such as the coastal areas, islands, commonly
catastrophe prone and ‘future’ catastrophe prone regions in South East
Asia.
The re-insurance industry does not have
the luxury of time in which to debate the ‘possibility,’ of climate
change but rather to focus on the ‘probability’ of the consequences.
With the cost of natural disasters predicted to rise exponentially in
coming decades, the issue of human security is measured in economic
terms. The economic effect of climate change is vague with popular
measures of market costs, changes in quality of life, lives lost,
species lost and variations in cost distribution and subsequent
benefits. These costs are summoned into willingness to pay (the
readiness of people to exchange their capital or income for improved
human security) and willingness to accept compensation (the amount of
compensation needed to see inhabitants forgo certain standards and
accept deteriorating conditions).
With 2005 noted by the insurance industry
as holding the highest economic loss (USD $230 billion), the economic
implications of natural catastrophes is apparent holding 2-9% of GDP in
aggregated monetized damage. As 1-1.5% of this aggregated monetized
damage occurs in OECD nations and 2-9% in developing nations the
interests of regional stakeholders can be distinguished according to
strength of climatic conditions on their area. In response, the
re-industry has moved to new catastrophe modelling systems, developed
new insurance products, flaunted ‘green’ initiatives and created new
defences against climate-related claims in order to analyse and more
effectively assess the probability of risks and integrate problem
solving mechanisms.
As in all industries, re-insurance is a
case of supply and demand with dominant players holding the reins of the
insurance industry to mitigate larger risks by providing financial
backing, reduced exposure to insolvency, and stability due to the
geographically spread risk. The North American market has long been the
most strongly insured of the regional global markets with the Asian
region seen as the rising star due to the increased economic development
and subsequent demand for insurance. Depending on the region, insurance
coverage as well as government relief funding, will be limited in
relation to the location’s level of risk. As the South East Asian region
hosts increasingly prospering nations, situation in medium to high risk
areas for natural disasters, the risk must be carefully calculated;
after all, it is a business. This region holds a high propensity for
natural disasters including earthquakes, tsunamis, flooding, mudslides,
and storms whereby currently effected regions are expected to be joined
with newly affected regions due to global warming.
Whilst the economic imperative is
addressed through the continuous revision of insurance policy and claim
trends, the question of ‘protection’ remains. The role of insurance is
that of a safety net; to catch those who stumble and fall in situations
which could not have been circumvented. With the individual and the
community at the centre of the human security issue the issue prevails;
who will catch them when they fall?
Human security surpasses traditional
notions of security to comprehensively include environmental, political,
social and economic aspects. In the case of environmental security, the
threat thereto is not isolated to a particular individual or community,
but rather an intensified affected core with global repercussions. Risk
management, as in the case of insurance risk, credit risk, market risk,
and operational risk, is the cornerstone of re-insurance with
underwriting controlling the limits of insurance and identifying
information such as in the case of natural catastrophes and
environmental threats. Re-insurance is not a philanthropic concept or
support network, but rather an industry interdependent with the global
economy and market trends whereby weakened global financial markets and
investor pessimism are critical factors.
The re-insurance industry, particularly
internationally, is marginally transparent with the safety net not
extending to all areas. The series of ‘no-go zones’ demonstrates the
economic imperative and business rationalism which conducts the
insurance, and indeed protection, of regions. The ‘no-go zones’ are
specific geographic regions considered too ‘high risk’ for re-insurance
and subsequently insurance companies to insure. Thus, the plight of
these areas is dependent on effective fiscal policy and a strong
national welfare system to mitigate risks associated with climate
change.
In the case of the South East Asian
region, particularly in coastal areas and islands, the ‘no-go zones’
will have a profound effect on human security as inhabitants seek
protection and welfare support. From this it can be suggested that
environmental peril may be grounds on which seek and be granted asylum.
This may lead to new migration trends and subsequently strain
inter-regional relations, immigration policies and welfares systems as
well as setting precedents for future ‘no-go zones’ and other
un-protected areas.
The economic paradigms dominating the
global must be considered in relation to the interests of human
securities by examining the re-insurance market and the implications for
humanitarian issues in the South East Asian region and subsequent
international policy development to cater for social developments.
2
Insurance- Development and Purpose
2.1
Insurance Origins
The urge to circumvent risk is primal,
with physiological needs and the ability of humans to ensure that these
are met in the unforeseeable future allowing for development. Arguably,
the storage of food, the establishment of multiple shelters, as well as
group cohesion are all instinctive methods of insurance. These efforts
to act in counterbalance of external factors or unsure elements are not
only true for mankind but also for flora and fauna; security is primal.
As Maslow suggests, the desire and indeed
need for security runs a close second to our innate physiological needs
with self actualisation as the ultimate motivation (Mitchie, 2001). When
considering human development from the early groups and tribes to
civilizations, it is evident that the cohesion was security, prior to
fulfilling the need for belonging. These groupings for security lead to
protection against natural elements, predators, or unforeseeable events
such as fires.
In essence, insurance is the management of
risk or possible negative consequences based on the probability of these
occurring. The origins of insurance developed in correlation with
civilization as the rise of economic activity through trade and
organized social welfare systems asserted the need to manage risk.
Ancient welfare systems catered to the risk associated with death
through the development of charitable or benevolent societies. However,
the structures of these are limited in links with current health or life
insurance systems. With the development of structured societies and law,
the concept of insurance as it is known today, emerged.
The greatest developments were trade and
property. Economic implications for civilizations grew as trade
flourished, with merchants developing systems to protect their goods
from potential loss. In consequence of trade, the development of marine
insurance became the first systematic insurance form, due to the
enormous economic implication of lost cargo as well as the high risk
environment of the freight. The seas and waterways have historically
been considered an area of ‘danger’ or risk, often associated with
legends and myths whereby man and his mission were at the mercy of the
water.
Another key element which affected the
need for insurance is fire. As property became synonymous with the
ability to address physiological needs as well as security, belonging,
and esteem through status objects, the risk of fire critical. Although
fire was the essence for warmth, living, and often working, its misuse
or mismanagement could lead to significant problems and therefore posed
a constant, unpredictable, threat. Indeed the idea of insurance as it
is known today was largely developed in Britain and Germany, before
spreading across to the United States whereby regulation regarding
insurance for fire, property, marine and health with of World War II
seeing a rise in Multinational Enterprise insurance (Wilkins, 2009).
2.2
Insurance and Ideology
The concept of insurance relies on the
idea of ‘risk,’ and the probability of this risk indeed occurring.
However, prior to complex mathematics and statistical analysis, the risk
could not be adequately assessed with the likeliness of the occurrence
as well as the extent of the consequences being discussed through
personal perspective and agreed on through consensus. As ideological
beings, humans have attempted to explain life, the world and its
meanings through various ideologies, belief systems and religions.
Whilst prayer and worship were often used as a means to mitigate risk,
economic and social insurance strategies for security were developed.
However, the concept of risk may not exist if one’s ideology suggests
that indeed all chances, losses and gains are for a specific purpose or
destiny determined by a greater power.
Life insurance is a further ideological
contrast, as life is given a sum of its worth in monetary form. This
commodification of life was rejected as unethical in Europe during the
abolitionist movement. However, the critical element of property and
security emerged in later years with the benefits outweighing ethical
considerations. In some cases, insurance and subsequently reinsurance
are against ideological constructs with some community or religious
groups therefore refute the concept. The Amish community displays
distaste for insurance, suggesting it is the role of the community and
church to work together and ensure common security. For this reason, the
Amish community reject insurance as well as social security which is a
stark contrast to the insurance driven United States of America and a
paradox to the security networks for which it strives.
2.2.1
Islam and Insurance
The idea of risk management through
insurance is considered illicit as the community is to take care of one
another and thus does not need ‘insurance’ as it is commonly understood
if the community is following its religion wholeheartedly. This can be
seen in the Muslim faith whereby
Al-Gharar (Uncertainty) and
Al-Maisir
(Gambling) as well as
Riba
(Interest) are associated with common
conventions of insurance and therefore are not in accord with the
Islamic law (Mayasami & Williams, 2006).
In response to the innate need for
security, the Muslim community developed the system of Takaful based on
Al-Mudharabah
(profit sharing),
Al-Takaful
(joint guarantee) and
Tabarru
(elements of donation) (Mayasami &
Williams, 2006). The popularity of Takaful operators has increased
steadily in the past decades with organizations often run in partnership
with government institutions. For example, the Dubai Islamic Insurance
and Reinsurance Group (AMAN) is owned by Dubai Islamic Bank and
investors whilst licensed to the Dubai Department of Economic
Development. According to their website AMAN highlights the aims of
Islamic insurance to:
-
Support social solidarity.
-
Help protect the community from the
negative impact of adverse circumstances.
-
Improve quality of life through the
peace of mind that comes from security.
-
Save and invest money through a
shared system that distributes profit on premiums invested by
policyholders on an annual basis.
The Muslim system of Takaful may be
considered insurance in theoretical terms with the involvement of a
common finance pool to allow members to bear each other’s burdens. For
this purpose, the Islamic banking industry operates differently to the
western system and caters to the needs of its religious followers.
2.2.1.1
Implications for South East Asia
The South East Asian insurance and
reinsurance market hosts a diverse range of ideological elements which
effect practice and operations. In the consideration of human security
and the association with insurance and re-insurance, it must be noted
that the statutory system of nations not only differs due to sovereign
developments but also due to the ideological basis of these constructs.
Islam in relation to insurance is particularly strong in South East
Asian nations such as Malaysia where Takaful is increasing. As a
multicultural nation, Malaysia hosts both the conventional insurance
system as well as the Takaful system with the Takaful 1984 Act
introduced to supervise Takaful activities no longer covered in the
previous insurance act. Indeed the Takaful industry in Malaysia alone
is headed by four pillar organisations including not for profit models
and variations of cooperative models.
From the example of Malaysia, it can be
seen that South East Asia as a region balances many multicultural issues
which also pertain to industries such as insurance and re-insurance.
Whilst the SEA hosts both conventional and Takaful organizations, the
response to risk management in the face of climate change and human
security issues will be significant.
2.3
Risk
Confirmed by neuroscience, humans are risk
averse by nature with decision making in the face of risk determined by
two important components; the rate of error and the predictability of
the set outcome. Indeed where the outcome of the decision is ambiguous,
the Orbitofrontal cortex becomes the key element in the process. Whilst
‘chance’ is seen in a positive light, risk has a negative connotation.
In daily life, as well as in business, the assessment and management of
risk ensures survival.
Essentially, the assessment of risk allows
educated decisions to be made. The realm of decision making greatly
depends on the ability to foresee outcomes and the likelihood thereof
with strategies often developed when information is lacking. However,
when risks prove immanent, incalculable, or unavoidable, people become
willing to accept risk. In the case of the insurance industry, risk is
accepted once an external partner is willing to take the risk on the
individual or company’s behalf.
Whilst insurance ‘protects’ peoples and
business from negative externalities of uncontrollable forces by
replacing the loss with monetary assistance, insurance does not protect
against the loss itself but acts as a compensatory mean. Indeed,
insurance is not the shield with which to ward off the occurrence of
such events, but rather limits the negative impact or ‘risk’ by monetary
means.
2.3.1
Probability
The basis of risk is probability; or the
likeliness of an outcome occurring. This is crucial in decision making
as the likeliness of a risk occurring will determine whether or not the
person or organization will decide for or against the decision.
Probability is based on the information
given including statistics, data, personal information, trends, external
factors and others. The probability of the risk occurring is then
calculated from this information which demonstrates how high the element
of risk is in the decision.
The success of insurance as an industry
depends on its ability to establish the probability of the risk and the
subsequent likeliness of its occurrence as well as its outcomes. As
insurance firms are a business, and not philanthropic organisations, the
ability to establish grounds for insurance through probability is
critical to their success.
2.3.2
Types of risk
In the insurance industry risks can be
categorized into pure risks, fundamental risks, or speculative risks.
Pure risk relies on the possibility of loss with chance detracted as a
variable leaving the optimal outcome to be status quo. Fundamental risks
are large scale events which threaten people and property such as
natural disasters. Indeed fundamental risks are a threat to human
security. Most commonly insured risks pertain to a particular risk which
has limited negative effects whereby the outcome only affects one of a
number of people negatively. This is contrary to the fundamental risks
borne by a group.
In addition, the corporate sector houses
additional risks including speculative or entrepreneurial risk. This is
where the risk is often un-insurable as the risk depends on commercial
decision taken and whether the subsequent transactions will result in a
gain or a loss. To act in compensation of speculative risks, financial
management tools such as hedging and forward contracts may be
implemented with other business risks reduced through improved
efficiency, adapting technology or diversifying the product base.
3
Insurance
3.1
Protection against Risk
Insurance is the promise of protection
against potential future risk in exchange for a premium paid today
(Swiss Re, 2004). Indeed, Van Cayseele (1991) draws comparisons between
insurance and savings accounts from a consumer’s perspectives as both
aim to ward off risks. Today, insurance can be sought for tangible as
well as intangible assets including health, life, home, car, contents,
business, and travel. The insuring party therefore takes a portion or
the entire risk by terms of contract or insurance policy, in exchange
for a premium or fee. In the event of the risk indeed occurring and
negative outcomes prevailing, the holder of the insurance is entitled to
claim the amount lost through the occurrence from the insurer according
to the amount due as per the policy.
This concept of insurance is common in
North America, Western Europe and Asia dominating the market with
customers interested in being ‘covered’ in the case of an unlikely, but
costly, event occurring. As the insurance firm is made up of many
clients, the laws of probability suggest that only a small number of
these clients will be effected thus the funds collected by the insurance
company through premiums being more than adequate to cover these costs.
From this it can be seen that statistical analysis and calculation is
crucial.
In order to be able to insure against such
risks, insurance firms prescribe conditions which must be met in order
for a client to qualify for insurance. A key component of insurance is
that the timing or occurrence of the loss is uncertain and therefore a
risk; only predictable to a degree but not foreseeable and in essence
random.
3.1.1
The Law of Numbers
According to Swiss Re (2004) the law of
(large) numbers is a statistical principle suggesting that the more
single or independent risks added to the reinsurer’s portfolio, the more
stable the outcomes will be as diversification can provide a higher
level of protection.
As probability is used to calculate risk,
insurance firms depend on the risk assessment of future losses. In order
to do so, the likelihood of such occurrences is based on mass. The ‘Law
of Large Numbers’ is used to calculate the expected loss of a large
group, thus allowing a premium to be calculates when the risk is spread
across the group. In the case of insurance, the more unique the risk or
the more likely that it will occur, the greater premium be paid.
While economists suggest insurance is,
like any market, under the terms of supply and demand, occurrences are
not necessarily independent (natural disasters) or unintentional
(terrorism) and may indeed depend on the identity of the purchaser
(health). Furthermore, Giarini (2001) highlights the concept of
insurance as ‘market failure’ in relation to the notion of the perfect
market equilibrium where all information is available as insurance firms
base their considerations on uncertain future terms.
For this reason, insurance has often been
criticized as being discriminative (Palmer, 2007). In contemporary
setting, this is particularly of concern with climate change and the
denial of insurance coverage for regions of geographic locations ruled
to be too high risk.
3.1.2
The insurance market
The insurance market is a multi-billion
dollar industry with competitiveness ruled by implications of supply and
demand. Private insurance activities have increased at an estimated 5%
per annum to address inequalities and vulnerabilities related to industrialisation, production, environmental issues, technological
developments, personal vulnerabilities (unemployment, death, health,
accident, retirement) and social vulnerabilities (political
instabilities and state welfare issues) (Giarini, 2001).
Today, it is common to see advertisement
for insurance and the implement insurance brokers to seek the best deal.
This ‘shopping’ for insurance has become commonplace whereby some
nations prescribe insurance as necessary practice particularly in public
institutions.
Although the market is deregulated, in the
interest of citizens most governments offer solid statutory base (such
as through Insurance Acts) to ensure that the insurance holder as the
weaker partner is on par with the firm or vendor. Insurance policies
must be approved by regulatory agencies prior to being put on the
market. The codification of insurance law on an international level was
developed in the Americas and Western Europe post world war two and is
today largely governed by the International Association for Insurance
Law (AIDA) (Mango, 2003).
4
Re-insurance
In the case of insurance firms facing risk
themselves, re-insurance acts as the means with which the firms can
reduce their exposure to risk or loss. According to
Global Reinsurance
Highlights
(cited in Swiss Re, 2004)
it is estimated that 250 reinsurance
entities are in operation globally with shareholder equity in the 40
biggest firms amounting to USD 249 billion in 2003. Furthermore, the top
four reinsurance firms in 2002 held 35% of the global market share which
is an increase from 22% in 1999 (Trump, 2002) The reinsurance industry
is integral to the insurance market as it allows a larger capital base
to spread risk (CEA, 2006).
The re-insurer takes on the burden of
risk (financial) in exchange for a premium and may chose to manage only
single risks through facultative reinsurance or under contract terms
through treaty reinsurance. In other words; reinsurance is the insurance
of the insurance firms. Reinsurance provides direct or primary insurers,
multinational corporations, reinsurance intermediaries, nations, and
captive insurers with reduced volatility, improved financing, and access
to additional expertise (Swiss Re, 2004).
Reinsurance is purchased for a number of
reasons. According to Swiss Re (2004) the degree of reinsurance
purchased falls due to portfolios and exposure to catastrophic events
(natural disasters), inadequate capital to diversify risk,
specialization leading to higher risk, risks hold high exposure
(aviation industry), life insurance with mortality or disability risk
element are at higher risk, when entering new regions or developing new
products, or to improve regulatory considerations through an improved
balance sheet. Essentially, these reinsurance reduces the exposure to
insolvency and provides balance for insurance issuers.
Re-insurance is different to insurance as
the parties negotiate at equal standing through contracts rather than in
the case of insurance where the client or insurance holder is at a
disadvantage to the insurance company. The reinsurance firm holds an
advantage in the contract with the insurance entity stating that the
reinsurance firm cannot be held responsible in the case of insufficient
funds being available to guarantee support (Swiss Re, 2004). Therefore,
it is of interest to the insurance firm to make sure the reinsurance
firm is healthy and liquid. Furthermore, reinsurance firms can act
globally in order to spread their risk.
4.1
Risk Management in Reinsurance
Naturally, reinsurance entities are not
entirely free from risk and therefore invest significant time and
resources in accurate calculation and management of risk. The risk
capacity of reinsurers cannot be mitigated by lesser conditions than
other actors in the capital market as the volatility of the reinsurance
business is higher and therefore needs to carry higher returns to
capture and retain the interests of shareholders (Trumpp, 2001). Risk
management in reinsurance is the balance between underwriting, asset
management and capital management. These implications are considered
through modelling as seen in Figure 1.

Figure 1. Risk Modelling- Swiss Re 2004
4.1.1
Underwriting
The main objectives of the underwriting
process are the assessment of risk including terms and conditions,
ensuring that the assigned limits are respected, implementing controls
for a peak and accumulation risks, and ensuring appropriate wording and
pricing (Swiss Re, 2004). According to Swiss Re (2004) underwriting
examines prices, assesses and classifies risk for a certain segment,
single risk or contract terms.
4.1.2
Asset management
The premiums received by a reinsurance
firm are again invested. Asset management is responsible for delivering
portfolio data to risk management where asset allocation corresponds
with the characteristics of the liabilities also known as asset and
liability management or ALM (Swiss Re, 2004). In asset management,
accurate information is critical in order to assess both its value as
well as its subsequent liabilities. Considerations in this process
include currency exposure, payout patters, inflation, credit risk,
changes in interest rates, equity, real estate prices and market
movements (Swiss Re, 2004).
4.1.3
Capital management
Capital management is critical to
reinsurance as the amount of capital and its management is determinant
of reinsurance firm’s ability to meet its promise as well as its appeal
to the primary insurer. According to Swiss Re (2004), capital is most
critical for adverse situations regarding investment income,
depreciation of assets, stock market slumps, economic downturns, or when
payments exceed premiums. As in a business situation, capital acts as a
shield against unexpected loss or cash flow issues. Capital management
must balance the capital and risk of the reinsurance firm whereby a lack
of congruence cues the increase the capital base or lighten the
investment risks and underwriting (Swiss Re, 2004).
4.1.4
Principles of Insurability
Insurance and indeed reinsurance must
adhere to certain principles which limit the insurability of a case or
situation according to its associated risk. The risk criteria must be
fulfilled in order for the risk to be insured based on accessibility,
randomness and economic efficiency (Swiss Re, 2004).
The ability to assess a risk is critical
in order to quantify the probability of its occurrence and possible
consequences as well as the estimated severity in order to determine the
appropriate premium (Swiss Re, 2004). Randomness is also critical as the
timing and likelihood of the event occurring critical to the insurance
calculation as well as being independent of the will of the insured
(Swiss Re, 2004). Regarding the premium, economic efficiency must be
identified in relation to the risk (Swiss Re).
Regarding natural catastrophes and
associated insurance behaviour, the likelihood of the event occurring
and the associated costs are based on scientific data and past record.
Consequently, premiums are set according to this level of risk and the
likeliness of the occurrence. In an area prone to certain disasters such
as flooding, bushfires, storms or earthquakes, the premium for insurance
may be higher and/or limited in coverage.
4.1.5
Further Considerations- Capacity and
Accumulation
Risks are accepted if they meet the limits
of the set criteria as well as demonstrating the principles of
insurance. The capacity or the maximum amount of coverage which can be
offered by the reinsurance firm for a specific risk, depends on the
portfolio and data with the higher the degree of risk, the greater the
stringency on applying the limit (Swiss Re, 2004). In correspondence,
accumulation refers the interdependency of risk, often the case in
natural disasters or in the concentration of shares (Swiss Re, 2004).
4.2
Ethics and Fairness
As discussed by Palmer (2007), insurers
and reinsurers aim to be profitable thus setting premiums based on the
probability of adverse events occurring. Whilst debate surrounds the
assessment of individuals through categorising their case or on
statistical discrimination, in the case of human security the ethical
consideration is that of access. Palmer (2007) highlights that lack of
access to insurance has social implications particularly if the
government social security net does not provide a substitute suggesting
that goods imperative to an adequate standard of living should not be
entrusted in a private, commercial industry.
5
Natural Disaster Insurance
The exposure to natural disasters
corresponds to the location of the insurer, as some locations or
geographical areas have a higher propensity for certain natural
disasters than others. The assessment of this likeliness is based on
past records and scientific data with reinsurance firms, such as Munich
Re, having specialized departments dealing with this particular field.
The exposure to natural catastrophes is growing due to higher population
density and subsequent migration and urbanization as well as climate
change (Swiss Re, 2004; Munich Re, 2009). The loss potential for the
insurance industry is high in these instances and reinsurance is
critical in managing these risks.

Figure 2. Largest Insured Natural
Catastrophes and Associated Potential Losses in USD bn, 2004-Swiss Re,
2004
5.1
Natural Disaster Trends
According to Berz (2002) the propensity
for natural disasters has dramatically increased in recent decades
demonstrating clear risking cost trends. Berz (2002) notes that prior to
1987, only one natural disaster ever cost the insurance industry more
than USD 1 billion and by 2002, 29 natural catastrophes have cost more
than this precedent amount. Whilst highlighting the significant losses
to the insurance industry, it must be noted that during this time the
insurance market also grew substantially as well as changes in economic
implications. It is estimated that claims arise from an estimated 600
natural hazard events annually with the increased costs a combination of
increased insured liabilities and their values as well as increased
occurrences in highly exposed areas (Berz, 2002).
As the reinsurance industry is based on
predicting the risk related to natural disasters, reinsurance firms are
attuned to scientific research particularly regarding climate change.
The purchase of natural disaster insurance and reinsurance products
relates to the propensity for the catastrophe to occur as well as the
financial position of the market with more affluent nations having a
stronger reinsurance market (Klein, 2009).
Due to the climate trends associated with
global warming, reinsurance firms are reconsidering the terms of
contract being careful in definitions related to time and randomness
(Klein, 2009).
The green industry trend has led
reinsurance providers to develop new products for customers exhibiting
green behaviour including decreasing carbon emissions and defensive
climate change approaches (Klein, 2009). Policies and products are
being, and have been, developed to address wind and solar energy
production, efficiency renovations, carbon reduction and insurance for
humanitarian emergencies as well as products for carbon market related
risks (Klein, 2009).
6
Climate Change
The UN Framework Convention on Climate
Change (UNFCCC) considers climate change to be attributed either
directly or indirectly by human action which may change the natural
composition of the environment additional to natural climate patterns (IPCC,
2007). As reported by the International Centre for Technology Assessment
(2004) the accumulation of greenhouse gasses in the atmosphere created
through the combustion of fossil fuels is the driver of climate change
effecting temperature, sea level, climate, biodiversity and geology. Whilst the CTA (2004) focuses its definition of climate change more so
on human behaviour as a driver, the IPCC (2007) suggest climate change,
whether due to human behaviour or natural patterns, can be identified
due to variability of the mean as measured over a period of years or
decades (IPCC, 2007). Subsequently, climate change infers issues in
health, biodiversity, agricultural production, social movement and
migration patterns as well as economic and political implications
(Schwartz & Randall, 2003).
The IPCC’s (2007) research notes
observations of climate change and the warming of the climate system to
be evident in:
· Warming temperatures globally
· The increase of arctic
temperature at double the average global rate
· The change in frequency and
intensity of extreme weather events
· Rising sea levels
· Decreased snow and ice
· Changes in precipitation
· Increased tropical cyclone
activity in the Northern Atlantic region
From these observations using data from
the 1970s to present day, the IPCC (2007) related observations of the
following effects:
· Temperature changes have
effected physical and biological systems
· Changes to permafrost
· The development of glacier lakes
· Changes to Arctic and Antarctic
ecosystems
· Changing run off patters for
water sources and water ways
· Effects on thermal structure and
subsequent water quality
· Changes to terrestrial
biological systems
· Changes to marine and freshwater
systems
· Changes to human activities in
the Arctic
· Health Issues (heat and disease
related)
· New patterns for agriculture and
forestry management
· Loss of Coastal Wetland
· Increased coastal flooding
The IPCC (2007) suggests that the future
of climate change and its subsequent impacts on the social,
environmental and economic capacity of the world is clearly related to
greenhouse gasses and their effect on temperature. Subsequently, IPCC
(2007) temperature forecasts include the scenarios of whether greenhouse
gas emissions will remain at the level seen in 2000 (best estimate 0.6*C
increase), intermediate population, economic growth, and local
sustainable development efforts (best estimate 2.4*C increase), or rapid
growth coupled with new technologies and fossil fuel intensive
activities (best estimate 4.0*C).
The IPCC (2007) estimates the following
future impacts of climate change as exhibited in table 1.
Issues and Areas |
Estimated Future Impacts of
Climate Change |
Ecosystems |
Changes to ecosystems, 20-30%
increased number of flora and fauna at the threat of extinction,
changes to terrestrial systems and subsequent biodiversity |
Food |
Shifts in geographic locations
suitable for agriculture production, slight increase to produce
food until a 3*C rise is reached at which point the production
again decreases |
Coasts |
Exposed to increased risks and
flooding |
Industry, settlements and
societies |
Areas close to coastal regions or
waterways are at greatest risk, as are those which are
economically dependent on certain resources, areas prone to
extreme weather events, or areas where urbanization is rapid |
Health |
Increased disease, injury and
deaths related to extreme weather, increased likelihood of
infectious diseases as population density grows, increased
diahorreal diseases, increased cardio-respiratory problems |
Water |
limited fresh water supply, energy
source, changes to seasons, increased flooding/droughts
according to precipitation |
Table 1: Estimated Future Impacts of
Climate Change According to IPCC Data (IPCC 2007)
6.1 Climate Change and Insurance
The acknowledgement of climate change
resonates a message of social, economic and political issues currently
debated with critical future implications. Climate change debate in the
past decade has moved from the crusade of left-wing minorities and
environmentalists to key industry bodies. The reinsurance industry is
sounding a warning bell as it describes the economic and social
implications of climate change for the industry. As described,
reinsurance is based on calculations, statistics and data to manage risk
effectively, contrary to the whimsical connotations often associated
with climate change debate.
In 2005, the total fatalities due to
natural disasters were 97 000 with a total loss of USD 230bn in losses.
Notably, the series of hurricanes in this year accumulated to USD 170bn
with the Gulf of Mexico’s hurricane Katharina creating USD 135bn in
damages (Swiss Re, 2005). The majority of financial losses related to
insurance and natural disasters are in high density areas, particularly
in industrialized nations with a greater number of valuable property
assets.
The estimated insurance bill for 2050 is
expected to exceed £200bn due to climate change related extreme weather
conditions and rising sea level (Brown, 2001). The predicted global
losses are related to the increasing frequency as well as intensity of
natural catastrophes with the sum of these events holding the potential
to damage the insurance industry as well as having significant liability
costs for nations (Berz cited by Brown, 2001).
As noted by the Association of British
Insurers (2009), the economic implication of climate change on the
insurance and reinsurance industry has the potential to effect the
global economy. Whilst the insurance market aims to cater to the needs
of insurance holders by expanding their offers, the impacts of climate
change would indeed see a reduction of insurance offers or insurance at
much higher costs due to climate change potentially increasing the
severity and frequency of natural disaster risks and subsequently
equates to increased losses (ABI, 2009). With primary insurers taking on
higher risk, a greater call well be made for reinsurance. However, as
these funds are also based on capital, they are not free from economic
burden.
6.1.1 The implications for
reinsurance
The implications for reinsurance are
primarily fixated on financial loss. As an industry, financial loss on a
large scale will have strong implications for the global economy (ABI,
2007). As reinsurance is not obligated to pay but rather is based on
promise, the ability of the reinsurance firm to do so greatly effects
the primary insurer (Swiss Re, 2004). This infers health, business and
investment, property, social, political and economic considerations will
subsequently be effected. Although investment is often thought of in a
private sector, it must be noted that reinsurance also caters to the
interests of public sector.
The high exposure to natural catastrophes
are but one aspect, as the increasing population, urban density and
economic growth increase the exposure of areas or nations at a greater
rate that climate change with the subsequent increase in demand for
insurance and reinsurance seen as a cost effective means of adaption
(Swiss Re, 2010). Indeed, reinsurance can be seen as the proponent of
risk management (Thumpp, 2002)
Climate change poses a problem for
reinsurance not only due to the possibility of economic loss but also
due to issues relating to risk calculation, underwriting and
forecasting. Further implications include changes to premiums, having to
decrease offers, changes in the relationship with certain regions or
insurers of that area, changes to investor relations and changes to
country risk management and subsequent no-go zones.
However, it can be seen in the case of
micro-insurance and country risk management, climate change creates both
risk and ambiguity with a possible associated increase in premiums and
decrease in reinsurance products as well as proposing opportunities
(Swiss Re 2009). The fear in regards to climate related issues as well
as the increased risk creates both opportunities and threats for the
reinsurance industry.
6.1.2 Country Risk Management
Country risk management sees reinsurance
manage the economic, financial, societal, political and environmental
risks through an ‘all-hazards approach,’ citing climate change at the
forefront of risk considerations and economic imperatives (Swiss Re,
2009). The argument of the reinsurance industry is that risks,
particularly in globalised contemporary society, does not halt at
national borders with typical risks associated with country risk
management including natural disasters (storms, floods, earthquakes,
droughts), health issues (pandemics), war (including terrorism), public
and corporate assets, infrastructure risks, private property and food
and energy security (Swiss Re, 2009).
The economic argument prevails with Swiss
Re (2009) highlighting that in 2008 only USD 50bn of USD 225bn in global
economic losses due to natural or man-made catastrophes was covered by
insurance with governments, businesses and the private sector paying the
losses which occurred. This leads to higher debt, the need to raise
taxes, deferred investment, decreased investment, and higher debt, all
of which according to Swiss Re (2009) can be mediated through country
risk management.
Swiss Re (2009) proposes risk mitigation
and risk transfer. By shifting the economic impact from post-catastrophe
to pre-catastrophe by encouraging government investment in risk
mitigation as a pre-emptive measure dealing with the economic impacts of
disasters in the long run will be more financially viable. However, as
not all catastrophes can be mitigated, thus risk transfer allows the
securing of funds before the event through reinsurance or capital market
solutions (Swiss Re 2009). This can be developed through government
funds where the reinsurance firm will make capital immediately available
if the catastrophe meets the set criteria, for programs for charity
associations, or in association with the World Bank.
7 The South East Asian
Insurance Market
The Asian market for re-insurance has
grown dramatically in the past decades as the third largest market
region after North America and Western Europe (Swiss Re, 2004). South
East Asia has been particularly marked with change in the past decades
with economic rises and falls, industrialization, urbanization, a change
in socio-economic conditions and political issues. The increase in
reinsurance in the South East Asian market is in relation to legislative
changes as well as through the increased number of international primary
insurers and reinsurers (Banks, 2010). Also, the South East Asian market
has been more resilient in the face of the economic downturn than the
two other key insurance markets, namely North America and Western
Europe, as well as having a more fragmented and less saturated market
than its northern neighbours (Banks, 2010).
However, the South East Asian region also
carries a high propensity for disaster with typhoons, earthquakes,
floods and droughts all examples of common natural catastrophes for this
area (Guy Carpenter & Co., 2006). Commenting on individual nations in
the South East Asian market AON (2010) noted that international
insurance agents have moved into the region in the past two years and
that the market has not changed dramatically regarding renewals. Indeed,
nations which had higher rates of renewal (such as Indonesia) were the
nations which had been exposed to natural disasters in the past year
(AON, 2010). Another characteristic of the South East Asian market is
that although disasters occur at a large scale the cost is rarely as
high as in the North American or Western European markets. For example,
Typhoon Ketsana in Vietnam and the Philippines in September (645+ deaths
and 7.4million+ claims) only amounted to insurer loss estimates of USD
260mn and economic loss estimates of USD 1.03bn (AON, 2010). In
contrast, severe weather during July in Switzerland and Austria (11+
deaths and 5,000+ claims) amounted to an estimated insurer loss of USD
1.25bn and an estimated economic loss of USD 2.5 bn (AON, 2010).
According to Swiss Re (2010) the global
nature of the reinsurance market makes it difficult to isolate trends to
a specific region, however the following comments on South East Asia can
be made:
· Some highly
fragmented primary markets result in relatively high cession rates of
primary insurers;
· Competition is
keen. Apart from international reinsurers, many regional and national
reinsurers are also looking to expand into SEA;
· Natural
catastrophe reinsurance is developing alongside increasing use of
models. However, penetration is still relatively low. Governments
sometimes resort to pool arrangements to increase penetration;
·
Regulatory changes towards
tightening of solvency regulations are having impacts on reinsurance
behaviors. More insurers are purchasing reinsurers for the purpose of
capital management;
According to Swiss Re (2010) Singapore is
currently the regional leader in South East Asia regarding reinsurance
and in particular country risk management. Singapore has a ‘Whole of
Government Integrated Risk Management’ framework (WOG-IRM) which is
considered best practice as it redresses inequalities, helps address
gaps in risk management, and identifies risks which would otherwise go
unnoticed.
7.1 Climate Change in South East
Asia
The diversity of the Asian continent
houses a wide scope of climate change effects with different regions
experiencing these in different forms and at different levels of
intensity. The Asian continent as a whole is at risk of social, economic
and political perils with South East Asia also susceptible to specific
risks (Schwarz & Randall, 2003). The IPCC (2007) observed the effects of
climate change in Asia to date as:
· Climate change effects
different sectors of the continent
· Marine and coastal
eco-systems are vulnerable to rising sea levels
· Some industries
(agriculture and fishing) are experiencing negative effects possibly
related to climate change
Although the Asian continent seems too
vast to analyse, the IPCC (2007) noted the following as significant
future effects of climate change:
· Decrease in freshwater
availability
· Increased risk of
flooding in coastal mega-delta areas
· Increased pressure on
natural resources due to urbanization
· Health issues associated
with floods and droughts set to rise
· Extinction of some flora and
fauna
· Rise of health issues
particularly air and water borne diseases
The impact of climate change on South East
Asia varies as the region’s diverse geography includes the archipelago
nations, coastal nations, and landlocked areas (see Figure 4). The IPCC
(2007), notes climate change as having a significant impact in the South
East Asia and the small islands of the pacific region. This region has
experienced change in temperature with an increase in temperature
between 0.1-0.3*C per decade (1951-2000) as well as changes to
precipitation particularly in the Philippines and Indonesia (Manton et
al., 2001, cited by IPCC, 2007). Flooding, droughts, changes in
precipitation, changes in temperature, heatwaves and typhoons have all
been noted to have increased in past decades (IPCC, 2007).
Heatwaves were experienced mildly compared
to other Asian regions through the increased number of warm days and
warm nights however flash flooding and landslides obviously increased
with cases in Vietnam, Cambodia and the Philippines (IPCC, 2007).
Furthermore, abnormal droughts were experienced in the Philippines, Laos
and Cambodia (IPCC, 2007). Between 1990 and 2003 the Philippines saw the
number of Cyclones increase by 4.2 (PAGASA, 2001 cited by IPCC, 2007).

Figure 4: Map of South East Asia
(ASEAN)
7.1.1 Climate Change and Small
Islands
Small islands are given special
consideration due to their abundance in the South East Asian- pacific
area and their vulnerability to climate change as well as their position
in reinsurance. The small islands are characterized by the IPCC (2007)
as being located in tropical latitudes, being of limited size, housing a
small population and being openly exposed to natural forces and
subsequently climate change, sea level rises and extreme events.
“While small islands are not responsible
for the causes of climate change, they are likely to be the first to
experience the worst effects of climate change, particularly through
sea-level rise on low lying islands or through water shortages on porous
and low lying islands,” (Timothy 2002 cited in Goffman, 2006)
In the Pacific Islands, where 50% of the
population lives within one kilometre of the shore, the rising sea
level, storm surges and erosion are very real threats to the
environment, the society, and the economy (IPCC, 2007). The pacific
islands of Tuvalu, Kirribati and Palau are already trying to adapt to,
or rather escape from, the implications of climate change and are
expected to be followed by others (ALP, 2006). As many small island
economies are based on natural resources, the effect on marine life and
the related fishing industry is critical in the survival of the island
populations (IPCC, 2007). Further soil salinity, sea level rises,
flooding and fresh water contamination will bring agriculture and self
sustenance to a halt as well as predicted adverse effects on human
health (IPCC, 2007). Furthermore, the tourism industry, particularly the
leisure market, will suffer as a result of climate change due to lost
resources, infrastructure, culture, water shortages and diseases (IPCC,
2007).
7.2 Disaster Prevalence in South
East Asia
The region comprises of 10
nations with diverse climatic conditions and susceptible to a range of
climatic and geologically related catastrophes. These natural disasters
include earthquakes, floods, typhoons, tsunamis, droughts, volcanic
eruptions and storms. As indicated by the IPCC (2007) the diverse
geography of South East Asia including coastal landscapes, low lying
islands, fault lines, rivers, mountains, and volcanoes puts this region
at strong risk of the possible negative implications of climate change
(Guy Carpenter, 2006). The geographic division of the region can be
considered in terms of the archipelago, coastal and land locked
countries. The archipelago includes Indonesia, Singapore, the
Philippines, Brunei, Malaysia, and East Timor whilst
Cambodia, Laos, Vietnam, Thailand and
Myanmar are considered the South East Asian mainland with Laos a notably
landlocked nation. For the purpose of this paper, some consideration is
also given to China and Japan as well as the pacific region due to the
geographic proximity of these nations and their considerable
interrelations with South East Asia.
Compared to the global insurance and
reinsurance markets, Asia has a relatively low insurance penetration
with areas such as China seen as upcoming markets (Thumpps, 2002; Guy
Carpenter, 2006). In the case studied examined, it may be noted that
insurance coverage and the demand therefore, is strongly correlated with
the ability of the market to afford such a product. However, as noted
by AON Benefield (2010) this has not halted the industry with key
players having entered, and successfully remained, in South East Asia in
the past decade.
Due to the political structure of some
South East Asian countries along with their propensity for natural
disasters and the low socio-economic development rate, governments are
often the main source of mitigating their financial risks particularly
with small primary insurers whereas larger primary insurers choose
international reinsurance firms. The regional reinsurance market of
Singapore provides greatest capacity of support in South East Asia.
7.3 Mainland South East Asia
Consisting of Laos, Cambodia, Thailand,
Vietnam and Myanmar, the South East Asian mainland is climatically
affected by a combination or coastal threats as well as land based
issues. As noted by ASEAN Leaders’ Statement on a Joint a Response to
Climate Change (2010) the
Nations Framework
Convention on Climate Change (UNFCCC) and the Kyoto Protocol (2009) are
acknowledged as the legal instruments of the international community to
address climate change. The goals of the leaders include moving toward a
global solution for climate change as well as ensuring South East Asia’s
resilience to climate change (ASEAN 2010).
Concerns for South East Asia in relation
to climate change are high due to the diverse levels of development in
the region as well as the dependency on natural resources. The mainland
area is particularly concerned by the possible effects of increased
extreme weather conditions such as cyclones, storm surges, changing
coastal conditions, temperature shifts (such as the effects of melting
glaciers in alpine regions on the river systems), precipitation and
flooding.
Of particular concern is the Mekong region
of the South East Asian mainland with the combined impacts on Vietnam,
Laos, Cambodia, and Myanmar (Swiss Agency for Development and
Cooperation, 2010; ASEAN, 2010). Further, the statement highlights the
need for detailed information, climate change assessments and
cooperation (ASEAN, 2010).
7.3.1 Case: The Mekong Region
The Mekong Region has received
international attention in recent years particularly due to cyclone
activity, the impeding danger of water based diseases through flooding,
the significant population density and the calls for regional and
international cooperation for socio-economic development (Swiss Agency
for Development and Cooperation, 2010). The Mekong Region is considered
one of the fastest growing economic subregions yet this growth is
partnered with its vulnerability to economic shocks and negative
repercussions associated with development challenges Asian Development
Bank (ADB), the World Bank, and the Mekong River Commission (MRC),
ASEAN, the United Nations Economic and Social Commission (UNESCAP) and
various state aid programs sharing an interest in the regions
sustainable development.
Climate change and the rise of extreme
weather events is a critical consideration for the region particularly
due to the dependence on natural resources and economic developments
synonymous increase in energy consumption (AusAid, 2007). The
implementation of development strategies may be impacted by climate
change with the developed ASEAN nations urged to assist their developing
regional neighbours as the access to, and sustainable use of natural
resources is critical the Mekong Region’s success (ASEAN, 2010; AusAid,
2007) A central issue to climate change and the impact on the Mekong
Region is the lack of information on current climatic conditions and
future implications related to climate change. It is estimated that
particularly Vietnam and Laos will be impacted by changing river
conditions and precipitation (increase or lack of) due to the dependence
on the Mekong River system (AusAid, 2007). Furthermore, the economic
development of the area will consequently impact the region’s
environment.
7.4 The Archipelago of South East
Asia
The archipelago of South East Asia
includes Singapore, Malaysia, Indonesia, Brunei, East Timor and the
Philippines. These island nations vary greatly in their level of
development and population density although their coastal-island
geographic unites them in their vulnerability to climate change and
changing environmental conditions. As noted by SwissRe (2010),
Singapore’s proactive approach to climate change and development is
considered best practice for country risk management by the reinsurance
industry. The disparity in development in South East Asia calls for the
various neighbouring countries to assist one another in a cooperative
effort to develop the region’s resilience to climate change (ASEAN,
2010). Environmental sustainability, management of natural resources,
and regional cooperation are integral to the success of the region
(ASEAN, 1997).
7.4.1 Case: Indonesia
Indonesia’s pacific location places the
nation of small islands at the cusp of global warming implications
through rising sea levels and storms as well as in a hazardous
earthquake zone of the Sumatran fault. Between 2009-2004, Indonesia was
hit by at least one devastating earthquake in its region annually with
further quakes expected in the future. These off shore earthquakes are
known as tsunami triggers with Spranger (2009) demonstrating the
implications of such geological occurrences in his assessment of the
2009 Pandang earthquake. Spranger (2009) cites the humanitarian
catastrophe as being a result of incomplete evacuation plans, poor
reconstruction of buildings after previous major earthquakes, and
lagging building and construction regulations.
The insured losses amounted to less than
US$ 100ml, making it the most expensive to date in Indonesia however the
amount is trivial compared to the death toll and loss of livelihood with
the poorest victims lacking financial protection in its most basic form.
Again, insurance is a privilege of those who have the financial means to
secure themselves, which in Indonesia are only a limited segment of the
population. The insurance industry has the know how to address this
issue and collaboration is needed in order for future victims to be
financially protected (Spranger, 2009).
The Indonesian reinsurance market in 2009
was rather uneventful, apart from losses associated with the Padang
earthquake (AON Benefield, 2010). The main area of reinsurance in
Indonesia is in business with companies reviewing catastrophe coverage
and increasing the capacity as well as a significant increase related to
fire risk (AON Benefield 2010). Furthermore, the revised earthquake
tariff to be introduced in 2010 will see an increase in costs for
earthquake coverage in certain areas (AON Benefield 2010). Suggestedly,
these adjustments are related to the changing climatic conditions and
the need to change habitual calculations.
7.4.2 China
Although strictly speaking not considered
as part of South East Asia, due to the large geo-scape of the country
and the effects of its economic movement and participation in the
reinsurance industry, China is mentioned in this context.
China as a market for reinsurance has
enormous potential as the direct insurance market is largely untapped
suggesting potential for future sustainable growth, particularly when
considering its complex risk environment including the propensity for
natural disasters, industrialisation, high metropolitan population
density, urbanisation, and increasing values (Thumpp, 2002). The
reinsurance industry also holds a significant interest in China, but the
interest in this area is also influenced by the current and future
implications of climate change. China’s wide and diverse terrain is
susceptible to varied climatic conditions including flooding, sea level
rises and earthquakes (IPCC 2007).
China’s extensive waterways have long been
a source of life and livelihood, however the changing climatic and
geological conditions associated with climate change are expected to
alter the current state of this relationship. According to the IPCC
(2007) the Yangtze Delta will be effected by geological and climatic
effects leading to a 0.5-0.7m sea level rise by 2050 (above estimated
global average). Furthermore, increased flooding during the summer
months are predicted in the lower- mid reaches of the Yangtze River
along with the sedimentary Huang He River also posing potential flood
risks (IPCC 2007 cited by Munich Re, 2009). The flood plains are popular
settlement areas and home to significantly large populations. In
addition, the level of precipitation in areas such as Shanghai also
presents a significant risk particularly to property and business with
such experiences mirrored across the country.
Although China has a high predisposition
for natural disasters, the level of insurance is limited. According to
Munich Re (2009), the ten largest natural disaster events since 1980
amounted to an aggregate loss of US $135bn, however insurance losses
only accounted for 1-2% of this sum. To mitigate losses related to
torrential rain and flood damage, Munich Re (2009) acknowledges that
forecasting and therefore protection is extremely difficult. Whilst the
state authorities recognize the necessity for flood prevention and act
accordingly, true risk prevention is far from certain.
A more destructive force than flooding are
earthquakes with China having a reputation for intense and deadly quakes
(Munich Re, 2009). Although the earthquakes are sporadic, the highest
hazard propensity is in western China and the bordering Himalayan
region. Furthermore, the country is ravished by the annual Typhoon
season which predominantly effects the southeast provinces.
In calculating probable
maximum loss (PML) the insurance industry focuses on China’s economic
centre where the hazards are high and the potential for loss are
economically significant. Notably, these industrial centres are core
business areas ensuring the
continuation of the Chinese economy including the areas of Beijing,
Tianjin, Guangzhou, Shenzhen and Hong Kong, the Guangzhou metropolitan
area (Munich Re, 2009). In relation to typhoons, only 5%- 20 % of the
estimated total losses related to these natural disasters are insured.
China’s insurance market is rapidly
growing in metropolitan areas, however the demand for this product is
limited to those who have the economic means to partake (Munich Re,
2009). China’s socio-economic disparity sees a stark contrast between
the growing demand of the affluent urban mid to upper class in contrast
to the hampered rural areas or lower socio-economic groups. Whilst
Munich Re (2009) suggests that the insurance industry is indeed growing
faster than the economy itself, the percentiles previously noted
regarding insured losses in the case of natural disaster suggest that
insurance is a privilege. Contents, third party and business related
insurance are still relatively unknown with life and health insurance
becoming more common place. In a culture which focuses on the central
family unit and the role of government in taking care of its people,
insurance has borne cultural hurdles in entering the market.
Essentially, risk mitigation is the role of the family group and the
authorities rather than by individual case as seen today as a result of
rising incomes, social insurance reforms, health care system changes,
and private pensions (Munich Re, 2009).
In order for equality in access and
support to be possible, insurance groups, reinsurance bodies and the
Chinese government with the assistance of experts must work together.
The current data available on natural disasters in China are
insufficient for reinsurance firms to effectively calculate the risk and
subsequent terms of engagement, leading to a funding pool situation
where individual municipalities then administer payouts according to the
intensity of the catastrophe (Munich Re, 2009). The interest of
insurance firms in the Chinese market is not only related to the newly
affluent group but also in health insurance, new forms of catastrophe
insurance and engineering insurance (Munich Re, 2009). In order for the
reinsurance market to function in the Chinese market, the capital base
needs to be expanded to mitigate risks and take on the role of risk
manager (Thumpp, 2002)
7.4.3 Japan
Although the IPCC (2007) suggests Japan’s
cost is more protected that that of its South East Asian neighbours,
Japan has a high propensity for natural disasters given its pacific
location in proximity to fault lines as well as its unprotected island
landscape making it a target of typhoons. In the 1990s, Japan suffered
from the highest number of sequential natural catastrophes in recent
history with 2004 being the most significant year of the past decade due
to the occurrence of 10 typhoons as well as the Nigata earthquake (Guy
Carpenter, 2006). Japan is also subjected to flooding, volcanic
eruptions, tsunamis and winter storms. The 2004, typhoons amounted to
USD 6bn in insured losses and USD 600 mn in the Nigata earthquake (Guy
Carpeter, 2006). The high population density of the island nation, high
propensity for natural disasters as well as the its socio-economic
wealth in comparison to some of its South East Asian neighbours
demonstrates a different aspect of the SEA reinsurance market. Property
policies provide protection from some, but not all natural disasters
with earthquake shocks or fire following an earthquake notably absent
(Guy Carpenter, 2006). This is redressed through the Earthquake Fire
Expense Insurance (EFEI) which provides coverage for small expenses
caused by fires after the earthquake (Guy Carpenter, 2006). Residential
earthquake insurance is administered by local primary insurers with
provisions made by the Japanese Earthquake Reinsurance Company and
Japan’s largest domestic insurer, TaoRe (Guy Carpenter, 2006). The
current level of earthquake coverage taken by policy holders is at 37.4%
(Guy Carpenter, 2006).
The Japanese market has a higher rate of
insurance, and subsequent reinsurance than its neighbouring South East
Asian countries due to its economic advantage and high risk environment
(AON Benefield, 2010). Indeed, the Japanese market was the only
insurance market to remain stable growing during the period of the
financial crisis particularly in life variable annuities and retirement
(AON Benefield, 2010). The number of earthquake capacity purchases made
between 1996 and 2003 demonstrates a strong growth trend (Guy Carpetner,
2006). Products are continuously developed for this market due to the
growing demand, and the financial ability to purchase.
8 Climate Change and the
Reinsurance Industry
In 2009, the US National Association of
Insurance Commissioners issued a mandatory requirement that all
insurance companies disclose the risk the face in relation to climate
change yet this was changed to voluntary participation with the
association stating that the data from the survey would remain
confidential (NAIC, 2010). Beyond the potential losses which could be
incurred in relation to climate change, the reinsurance industry must
also consider its legal liabilities (Klein, 2009). With class action
lawsuits having occurred in gas, oil, mining and chemical companies in
relation to environmental damages, the reinsurance industry could also
be effected by such suits (Klein, 2009). As Klein (2009) points out,
reinsurance has further liability issues due to its relationship with
investors and portfolio diversity suggesting plummeting stocks due to
incongruent policy or fund behaviour as case for legal implications.
Further, professional liability issues related to lack of information
disclosure could also provide case (Klein, 2009).
According to Swiss Re (2010), it is not
climate change as an isolated factor which effects reinsurance, but
rather in association with region and population. The impact of extreme
weather conditions can be seen globally, with South East Asia being
particularly exposed to natural catastrophes. Yet, the increasing
population and economic growth in South East Asia are the dominant
concerns in reinsurance as these will ultimately increase the demand for
reinsurance as a means to adapt to the changing social setting and
environment (Swiss Re, 2010). Essentially, reinsurance can be seen as
cost effective adaption to climate change however insurance market
penetration in South East Asia remains (Swiss Re, 2010)
A recent study of the Economics of Climate
Adaption Working Group (2009) Noted that enough data is available to
base decision making on cost efficient adaption measures citing the
economic value at risk to due to climate change risk being 1-12% of GDP
by 2030 at today’s climate or 1-19% of GDP by 2030 in accordance with
high climate change. An estimated 40-65% of identified risk associated
losses may be averted with insurance measures holding the potential to
address low-frequency events with high severity (ECA Working Group,
2009).
In summary, economic losses as a result of
natural disasters in Asia 2009 amounted to close to USD 17bn or 0.07% of
GDP, most of which would be uninsured (ECA Working Group, 2009). Of
those who perished in the catastrophic events of 2009, an 9400 lived in
Asia amounting to over half the total number of victims. Of the natural
catastrophes which occurred, typhoons claimed the largest number of
lives with Typhoon Morakot in Taiwan, the Philippines and China
claiming 900 victims followed by Typhoon Ketsana in the Philippines,
Vietnam, Cambodia and Lao resulting in 850 missing or dead.
The implications for the reinsurance
industry regarding climate change are summarised as housing the negative
consequences associated with incalculable risks and subsequent losses as
well as the implications for future liability issues. However, there are
also significant human security implications regarding climate change
and the reinsurance industry which are most prevalent, currently, in the
South East Asian no-go zones.
9 Human security
Human security, along with human
development, surpasses traditional notions of security to
comprehensively include environmental, political, social and economic
aspects and is associated by the increasing role non-state actors play
(Shaw, 2004). In the case of environmental security, the threat thereto
is not isolated to a particular individual or community, but rather an
intensified affected core with global repercussions. Risk management, as
in the case of insurance risk, credit risk, market risk, and operational
risk, is the cornerstone of re-insurance with underwriting controlling
the limits of insurance and identifying information such as in the case
of natural catastrophes and environmental threats (Swiss Re, 2004).
Re-insurance is not a philanthropic concept or support network, but
rather an industry interdependent with the global economy and market
trends whereby weakened global financial markets and investor pessimism
are critical factors (Thumpp, 2002).
Human security and human development have
been strongly advocated with a particular surge since the 1990s as the
influence of non-state actors becomes more prominent (Shaw, 2004).
Fernandes (2004) pertains the changing political and economic rhythms in
Asia to globalisation and the rising middle class with economic
prosperity, improved standards of living and education contributing to
more democratic political movements and proactive behaviour in uniting
the modern and the traditional. However, the South East Asia region
still houses human security issues related to civil unrest, welfare,
political, social and economic issues.
9.1.1 Environmental and Social
sustainability
With the summary aim of the Millennium
Development Goals being to halve poverty by 2015, the importance of
addressing environmental issues and their social implications are
critical particularly in South East Asia’s developing no-go zones which
would see a major step back in the development process.
The environmental sustainability index
benchmarks nations on environmental stewardship in aim of establishing
tools for environmental decision making and policy development,
presenting an alternative source of measurement to GDP and the Human
Development Index, and as an international benchmarking mechanism (ESI,
2005). Essentially, the higher a nation’s score the better their
position for favourable future environmental outcomes with high scores
often seen in nations with a low population density, economic prowess
and a stable, quality government (ESI, 2005). In the case of South East
Asia, the ESI cluster analysis splits the region in different groups
including Group 2 (Moderate system and stress scores; high vulnerability
and low capacity; above average stewardship) and Group 7 (Low system
score; moderate stresses, vulnerability, capacity and stewardship) (ESI
2005). Interestingly, the report shows no distinct correlation between
the development of a nation and its score. Whilst this report
demonstrates the stewardship of different nations and provides somewhat
of a benchmark, the disparity in the South East Asian region
demonstrates the diversity in environmental issues and their importance
to policy makers.
The Commitment to Global Development (CGD)
Index examines the efforts of nations to assist human development and
human security by particularly examining the relationship between
developed nations and developing nations. Notably, current members of
the CGD Index are developed western nations with the CGD Index data
demonstrating Australia and New Zealand to be the prominent players in
the south east asian region. Suggestibly, this is due to the pacific
proximity of the nations as well as the development status of Australia
and New Zealand (CGD Index,2009). The CGD Index indicates that
developing nations are at greatest risk with economic imperatives
prevailing in the assessment threats, education and proactive
initiatives.
9.1.2 Development and Disaster
Risk Management
As highlighted by the United Nations
Development Programme Disaster Reduction Unit (2004), the hindrance of
development due to disasters has implications for the development
programme and the ability of the participants to achieve the set
Millennium Development Goals unless risk prevention measures are
undertaken. These include the humanitarian and economic implications of
natural disasters with the humanitarian community active in response
measures rather than through policy development and proactive
initiatives (UNDP, 2004). Indeed, the UNDP Reducing Disaster Risk
Report (2004) suggests disaster risk as being an unresolved problem of
development and that it is the challenge of the global community to
address these risks. In particular, natural disasters and the
accumulated risks in relation to climate change need the response of the
international community to address, as well as the balancing of the
reinsurance industry in ‘country risk management,’ public authorities,
and mitigating the development of no-go zones.
The nations of South East Asia are
classified predominantly in Disaster Risk Index groups 7-4 with 7
indicating the highest disaster risk. Furthermore, the region is
surrounded by other high risk areas (Figure 3) (Peduzzi, Dao, Herold &
Mouton, 2009). Essentially countries are grouped in their geographical
exposure to natural disasters, the risk level of these disasters
occurring as well as the severity of the effects on the population. The
Philippines, although commended by their ESI efforts, are considered as
a category 7 group nation therefore having the highest quote of risk in
South East Asia (Peduzzi et. al., 2009).

Figure 3. Assessing Global Exposure and
Vulnerability to Natural Hazards (Peduzzi et al, 2009)
The Catastrophe Risk Evaluating and
Standardizing Target Accumulations (CRESTA) is an independent
organisation focusing on uniform global data on aggregated exposure for
risk control and modelling specifically for the insurance and
reinsurance industry. As an independent body, the information collated,
processed and provided is publically exhibited and predominantly used by
the insurance and reinsurance industries. CRESTAzones are a visual
depiction of risk related regional data providing information on
exposure in specific areas. In a CRESTA survey conducted in 2009, 51.2%
of respondents belonged to the reinsurance industry demonstrating the
value of CRESTA in risk assessment with 68.% of respondents doing
business globally and an additional 6.1% specifically in Asia (CRESTA,
2009). According to respondents, the CRESTAzone data is used for inhouse
accumulation control and risk management, for pricing tool input, to
send exposure data to reinsurance firms and for geo-coding (CRESTA
2009). Recently, CRESTA has indicated the possibility of updating this
information as regional figures have changed and the industries seek
more detailed risk exposure descriptions specific to areas which will
result in a high and low resolution information display (CRESTA, 2009).
However, critique suggests that the two options will create confusion in
analysis as well as limited data available in some areas remaining a key
issue (CRESTA, 2009). Noting the introduction of the earthquake tariff
according to Aon Benefield (2010) and the CRESTA (2009) adjustments, it
may be suggested that the new data collation efforts and price
adjustments are not only due to economic concerns but also as responses
to climate change and disaster risk management.
10 No-Go Zones
The reinsurance industry, particularly
internationally, is marginally transparent with the safety net not
extending to all areas. According to Swiss Re (2010) most nations in
South East Asia would not qualify for reinsurance as they are dealing
with basic welfare issue including poverty, food and water issues as
well as security concerns. Notably, emerging or developing economies are
often less sophisticated regarding risk management whilst holding the
highest vulnerability to natural disasters due to high population
growth, environmental degradation, and negligent urban planning (Swiss
Re, 2010). Subsequently insurance markets in these areas are often
underdeveloped and therefore not at the capacity for reinsurance to
enter the market. Further issues are related to lack of data and risk
awareness. Consequently, the lack of reinsurance in these areas is not
due to climate change itself, but rather risks exacerbated due to these
climatic conditions as can be seen in the example of India which, with
40mn hectares of flood prone, whereby 8% of the total land mass is prone
to cyclones and approximately 68% of the area is susceptible to drought,
cannot receive reinsurance (Swiss Re, 2010).
For the purpose of this paper, the plight
of the pacific region also be considered provide case for subsequent
replicas in the South East Asian region. Although international data
such as the Environmental Sustainability Index, the UNDP (2004), the
IPCC (2007) and the CGD Index have indicated that South East Asia is at
risk of similar environmental challenges, there has been limited
discussion or publications in this area. For this reason, the data of
noted international bodies, research institutes, non-government
organisations and government publications will be used to examine this
issue.
‘No-go zones’ are specific geographic
regions considered too high risk for reinsurance and subsequently
insurance companies to insure. The discussion of no-go zones is limited,
stakeholders providing limited data and refraining from the definition
thereof. Thus, the plight of these areas is dependent on effective
fiscal policy and a strong national welfare system to mitigate risks
associated with climate change. The series of ‘no-go zones’ demonstrates
the economic imperative and business rationalism which conducts the
insurance, and indeed protection, of regions.
Although not illicitly expressed, climate
change is producing no-go zones for the reinsurance market in which
areas pose too high a risk with minimal to no economic return or too
great a liability. The impact of climate change on the reinsurance
market has thus far seen an increase in purchases and growth in the
South East Asian market; however the risk of disaster is only
economically viable if the laws of probability ring true.
As discussed by Klein (2009), climate
change’s greatest current threat to the reinsurance industry is the
impairment in data calculation and effectively assessing the probability
and associated estimated scale of the risk. For the purpose of this
paper, no-go zones are considered geographic areas, regions or sovereign
nations with an incalculable or disproportionately high insurance risk
due to their high propensity for disaster, high risk for humanitarian
loss, and at risk of becoming unliveable.
10.1 No-Go zones in South East Asia
In the case of the South East Asian
region, particularly in coastal areas and islands, the ‘no-go zones’
will have a profound effect on human security as inhabitants to seek
protection and welfare support. From this it can be suggested that
environmental peril may be grounds on which seek and be granted asylum.
This may lead to new migration trends and subsequently strain
inter-regional relations, immigration policies and welfares systems as
well as setting precedents for future ‘no-go zones’ and other
un-protected areas.
In colloquial language ‘no-go’ zones is a
common term for dangerous areas particularly in cases of crime, war or
civil unrest. However, climate change is creating new ‘no-go’ zones as
some areas are considered too high risk for settlement let alone secured
by reinsurance. In South East Asia, these no-go zones are typified by:
· High propensity for natural
disaster
· Negative effects of climate
change leading to ‘un-liveable’ conditions
· High risk for humanitarian loss
For example, certain island nations of the
pacific are scientifically assessed to be sinking meaning climate change
is leading to increased natural disasters and negative effects making
the area ‘uninhabitable.’ In response, reinsurance firms will not be
able to support primary insurance suppliers as the risk is either too
high making the product unaffrdable or the key insurance criteria cannot
be met meaning the product cannot be supplied. Assuming the island
nation has a fragile and limited economy, this has direct consequence
with the ability for the region to be economically viable and be
socially sound as the economic imperative ensures health services. In
consequence, three options are available to the island nation: to seek
international aid, to stay or to go. Notably, all three possibilities
significantly affect the human security of inhabitants.
Currently, national initiatives may be
supported through international aid or reinsurance as seen in the
example of Swiss Re’s Country Risk Management product. However, this
product will only remain as long as it is economically viable due to the
commercial nature of the reinsurance industry. Critique towards the
industry is withheld, as it consists of commercial enterprises rather
than public institutions. However, when the financial safety net is no
longer on hand, these cases of missing funding will become humanitarian
issues for the international community.
10.1.1 Implications and Vulnerabilities
of No-go zones on the South East Asian Region
According to Paduzzi et al. (2009) there
are a significant number of island nations with insufficient data to
acquire an accurate analysis however that is not to say that these
nations are all no-go zones. Rather, it illustrates the difficulty in
evaluating all regions in South East Asia region. The implications of
no-go zones are difficult to estimate due to the lack of official data
available on these actual regions complimented by the fact that no
official ‘no-go’ zones have been declared for public debate.
Understandably, the declaration of no-go zones would have significant
immediate political implications. To estimate the repercussions of the
regions officially declared ‘no-go zones’ and the currently estimated
consequences of climate change ringing true, issues of human security
including welfare, security and protection and migration are core
implications.
10.1.2 Migration
As noted by the UNDP (2004), migration is
a developed survival strategy with seasonal or permanent migration used
in risk aversion. Migration is caused by the individual’s drive to
improve their quality of life including the exercise of fundamental
human rights, health and education with the risk associated with the
migration itself often seen as the necessary sacrifice for the potential
gains upon arrival at the chosen destination (UNDP, 2004). As discussed
by the UN Refugee Agency (2009), the population displacement due to
climate change is immense in correlation with disaster risk areas and
scarcity of resources. Currently, it is estimated that there are
potentially 25 million environmental refugees currently (Goffman, 2006).
The definition of environmental refugees is debateable with Myers (2005
cited in Goffman, 2006) stating it to be:
“People who can no longer gain a secure
livelihood in their homelands because of drought, soil erosion,
desertification, deforestation and other environmental problems,
together with associated problems of population pressures and profound
poverty.”
However Black (2001 cited in Goffman
2006), argues that:
“Although environmental degradation
and catastrophe may be important factors in the decision to migrate, and
issues of concern in their own right, their conceptualization as a
primary cause of forced displacement is unhelpful and unsound
intellectually, and unnecessary in practical terms.”
Migration is one of the key issues in the
development of no-go zones and relates to the third cited option of
‘leaving’ which, depending on the circumstances, may result in mass
exodus. For the south east asian region, the inhabitants of no-go zones
will follow current migration patterns of moving, out of necessity, to
other nations on hope of security, protection and a new beginning. In
reference to the CGD Index, it can be seen that Australia and New
Zealand hold the highest migration levels of listed developed countries
in receipt of migrants for South East Asia (CGD Index, 2009). When
considering Australia and New Zealand’s geographic proximity to South
East Asia, the trade links, security, aid, and the overall high CGD
indicators it would suggest that these nations would be the logically
primary movers in the migration movement of the no go zone population.
Furthermore, as categorised ‘developed nations’ with a lower disaster
risk factor Australia and New Zealand would be first ports of call (UNDP,
2004; CGD 2009).
In the case of migration as an option, it
is assumed that the possibility of living in the no-go zone remains
however the non-voluntary movement from this area would mean a case for
asylum. Article 14 of the UN Declaration of Human Rights 1948 declares
that all people have the right to seek and enjoy asylum in another
country free from prosecution. In South East Asia, the inhabitants of
no-go zones will indeed go somewhere. Climate change perhaps becoming
the newest ground for asylum. This poses significant problems as climate
change is a global issue, thus not the responsibility of a single nation
or community suggesting that asylum free from environmental risk is the
criteria for this status. Indeed, the plight associated with economic
deterioration, infrastructure loss, and crumbling welfare systems as
well as inadequate governance due to the inability to finance
initiatives creates a hostile living environment. The no-go zones are
set create climate change asylum seekers and orphans of global warming.
10.1.3 Implications for Australia and New
Zealand
Cases of environmental refugees have
already confronted Australia and New Zealand from their pacific
neighbours. As signatories to the United Nation 1951 Convention and/or
1967 Protocol relating to the Status of Refugees, Australia and New
Zealand agree to the status of a refugee as defined by the convention
as:
· People outside their country of
usual residence or nationality
· People unable to or unwilling
to return or to seek protection of that country due to well founded fear
of prosecution for reasons of race, religion, nationality, membership of
a particular social group or political opinion
· People who are not war
criminals or have committed serious non-political crimes
(Australian Immigration Fact Sheet 61 -
Seeking Asylum within Australia, Australian Department of Immigration
and Citizenship 2009).
The Australian Immigration Fact Sheet 61
also highlights that signatories to the convention are not obligated to
provide protection to those who do not meet the stated criteria or who,
“have left their country of nationality or residence on the basis of
war, famine, environmental collapse or in order to seek a better life
for themselves or their family.” Notably this specifically excludes
environmental collapse or environmental refugees. The federal
government’s recent policy paper ‘Our Drowning Neighbours’ is expected
to see Australia move into a new direction of immigration policy
particularly considering the harsh international criticism the nation’s
immigration has received in the past decade. Additionally, it has been
noted by the international press that Australia has indeed taken on
refugees from nearby pacific islands.
According to the CGD Index, New Zealand
outgrows Australia in its migration policy in the South East Asian
region and was markedly the first country to accept environmental
refugees. It is expected that the pacific cases of Kirribati and Tuvalu
amongst others, will set a precedent for environmental migration policy
and will be replicated across the South East Asian region due to the
number of island conglomerate and predominantly coastal landscapes.
According to Peduzzi et al (2009) the South East Asian region boasts
predominantly nations of the high risk category with many small island
areas missing data and therefore undefined, similar to the pacific
cases.
10.1.4 Welfare
Welfare is a key predicament in the case
of no-go zones internationally. As noted by Swiss Re (2010), the level
of development is critical in enabling reinsurance with basic welfare
needing to be addressed prior to products becoming available. As the
areas, regions or nations transcend from stable or in some cases even
prosperous areas to deserted habitats, welfare is a ground for the
population to move and the international community to be called to
attention. The welfare issue in climate change affected areas,
particularly small islands, include decomposing eco-systems, lack of
fresh water sources, extreme weather events, and rising sea levels (ALP,
2006). In essence, the basic physiological needs cannot be met. The
case for welfare issues depends on the starting point of the area,
region or nation with welfare considered either a the responsibility of
the state (often supported by reinsurance) or the responsibility of the
individual (in the case of primary insurance). As examined, South East
Asia hosts a great diversity in welfare standards often exhibiting
distinct class systems therefore influencing the primary access to
welfare. Welfare considers the quality of life by meeting physiological
needs as well as education and healthcare with access thereto diverse in
the region and again gapped by socio-economic strata.
The process begins in an area where
extreme weather conditions are becoming more intense or more frequent
often disrupting development or economic activity (UNDP, 2004).
Conversely, forms of agricultural production or natural resource
dependent industries deteriorate creating economic and social problems.
The government, depending on the region, may or may not act in response
to such issues by using national funding, reinsurance products, or
international aid. These issues lead to civil unrest as the population
moves in closer proximity to remaining available resources, which in
some cases will see a form of urbanisation leading to an eruption of
civil unrest regarding resources and a deterioration of welfare due to
lacking economic means and increased population density. The increased
population density is expected to, see a strain on infrastructure and
welfare systems such as healthcare with an increased population or
spread of diseases (for example water borne diseases) or both. At this
point, areas will start to become ‘unliveable’ with the propensity for
risk too high for the reinsurance industry to support national
governments with areas thus seeking the aid of the international
community as it becomes a humanitarian issue.
In the US Department of Defence Report
(Schwarz & Randall, 2003), global future scenarios are depicted for the
global community with examined country cases closest to South East Asia
being Bangladesh and China, which are both predicted to be plagued by
humanitarian issues due to lack of natural resources and famine (Schwarz
& Randall, 2003). Furthermore, the issue of development and mortality in
relation to high risk areas and regions with a significant propensity
for natural disaster have been determined (UNDP, 2004; Peduzzi et al,
2009). The 25 nations bearing the highest figures for disaster
mortality, demonstrated in Figure 4, host numerous South East Asian
nations.

Figure 4. Highest 25 Countries According
to the DRI (Peduzzi et al. 2009)
As outlined by the Australian ‘Our
Drowning Neighbours’ (ALP, 2006) report on the plight of the pacific
and the case of environmental refugees, the assistance of these people
is not only in environmental interests and humanitarian obligation, but
also for the welfare and security of Australia. Indeed, the fear of
waterborne diseases and the incapacity to act methodically in addressing
migration issues sees the welfare of not only the nations in plight but
also the supporting nations to be of concern (ALP, 2006).
10.1.5 Security
Climate change presents a challenge to
regional, national and human security with the potential to destroy
development gains as well as to dramatically hinder future development
as well as possibly destroying food systems, deteriorating living
conditions and causing conflict and disruption (ALP, 2006; UNDP, 2004;
Schwarz & Randall 2003). The security issue in South East Asia is to
emerge strongest in 2020 when the impact of climate change on the region
congregates and subsequently creates regional conflict (Schwarz &
Randall, 2003).
As civilisation is based on the ability of
humans as a group to rely on the resources of their habitat to address
physiological needs as well as provide elements with which to forage
political, economic and social identity, the lack thereof proposes the
disintegration of human security and subsequently of the population. In
the case of no-go zones, the ability to maintain a mode of economic
security is reliant on the combination of resource endowment, the supply
and demand movements of the market, and indeed the assurance of future
prospects. Here, reinsurance stands as an influential factor with a
security needed for economic stability. This security of livelihood is
integral to the ability of the sovereign state as an independent body.
Human security is greatly influenced by
the ability of the governing bodies of these risk imbedded areas to
manage the needs of their populations. As the lack of economic
progression leads to a decline in income and subsequently of national
finance, the state comes to rely on reinsurance plans or foreign aid. As
expressed, the reinsurance industry at such a late stage bears no
interest in supporting areas which may cease to exist. The issue of
protection is another key factor in security. Whilst the welfare issues
associated with food systems and living conditions deteriorating cause
civil unrest in dispute over resources, the threat to national security
also exists (Schwarz & Randall, 2003; ALP, 2006). Schwarz & Randall
(2003) suggest that disputes related to energy and food resources will
replace the ideological conflicts common today although the nature of
the conflict is debateable as is which weathers will surface as
attackers and which as victims.
In the case of no-go zones, the security
issues will predominantly focus on regional human security issues as it
is assumed these areas are not desirable by other nations due to the
propensity for disaster and the possibility that these areas may cease
to exist. However, the forced fleeing of the population to other areas
will create civil unrest in the new vicinity due to increased population
in contrast to the limited carrying capacity. The carrying capacity
refers to the ability of the earth’s ecosystem to support the population
with areas differing in their ability to meet these needs (Schwarz &
2003). In the case of no-go zones, the propensity for disaster decreases
the carrying capacity of the area therefore threatening human security.
As long as the carrying capacity of the eco system exceeds the
population peace will remain, whereby the opposite would cause
significant conflict (Leblanc cited in Schwarz, 2003).
10.1.6 Reinsurance v government
The reinsurance industry supplies
financial support and advice to government or organisations regarding a
wide range of risk issues. In the case of human security, two prominent
concepts in the past decade include terrorism and disaster risk. South
East Asia has a low reinsurance penetration with the reinsurance
products in these areas prominently seen in the US and in the European
markets (Guy Carpenter, 2006). The role of reinsurance in contrast to
the responsibilities of government is continuously examined with fiscal
policy often favoured over the commercial reinsurance industry, however
it is also acknowledged that the lacking capital base makes reinsurance
a player in the health equation with governments opting for fund pooling
solutions particularly in areas of welfare (Dror, 2001).
Country risk management is seen as a
product with which nations can counter these risks through reinsurance
to manage natural disasters, health issues, war, assets, infrastructure,
energy, property and security (Swiss Re, 2009). These can be seen as
consequences of climate change, however there is no insurance against
climate change as such. Furthermore, the economic argument prevails with
the financial implications of un-insured consequences falling on
government, business and the private sector creating significant
economic, political and social implications (Swiss Re, 2009).
Essentially, reinsurance in the case of negative consequences due to the
risks associated with climate change (such as increasing frequency or
ferocity of natural disasters) secured by country risk management is a
transfer of risk from the public sector to the reinsurance industry.
Naturally, the reinsurance industry is a
commercial sector which means that the interest in supplying reinsurance
products must sustain a level of profitability. As discussed by Palmer
(2007) there is an innate conflict in the notion of bestowing welfare
and human security on the reinsurance as a commercial industry as these
issues are clearly in the public sphere of responsibility. As the
representative body of the population, it is the role of the government
to ensure that the needs of the population are addressed. These needs
are commonly addressed through legislative measures and fiscal policy,
yet if the government does not have the sufficient funds or if the
government is not trusted by the population, as often the case in
developing nations, alternative measures such as reinsurance or foreign
aid may be taken.
In the case of no-go zones, reinsurance is
no longer an option leaving foreign financial assistance and
international financial institutions as the remaining funding avenue.
However, as the no-go zone is considered uninhabitable and the region or
state is expected to cease to exist, the willingness of the
international community to provide financial assistance, particularly
for redevelopment, is impossible. Furthermore, the economic impacts of
debts have implications for the no-go zone as well for the supplying
nation, which may lose the invested finance permanently.
10.1.7 International Community and
Foreign Aid
The role of the international community
regarding no-go zones is mixed as currently there is no public consensus
of this concept, however the role in regards to climate change seems
obvious. In considering the pacific cases currently being discussed by
the international community, the states as sovereign entities are
focusing on reactive strategies including disaster protection
structures, strategies to manage food and resource shortages, and
migration policy to ensure that inhabitants have a safe haven once the
area is indeed uninhabitable. As noted by the UNDP (2004), the focus of
humanitarian issues by the international community in disaster risk
areas focuses on post factum aid rather than proactive measures.
Reducing disaster risk is considered of
interest to the international community to due to the consequences it
bears on development as well as further repercussions on the
international realm including climate change policy, financing,
international trade, foreign aid, and migration policy (UNDP, 2004). As
the IPCC (2007)notes, south east asia is at the threat of climate change
with the majority of these nations categorised in the top 25 disaster
risk exposed nations (Peduzzi et al, 2009). The linkages with the
international community have been integral to the
30.01.2014

Call for Action in Syria
World Security
Network reporting from Berlin in Germany, January 23, 2014
Dear
Friends of the World Security Network,
as the Syrian peace
conference is currently held in Montreux, Switzerland, the independent
World Security Network Foundation would like to share with you its proposals
for the future of Syria, that we have come up with two years ago and still find
them valid today.
1.
A new Syrian Constitution should be discussed and
adopted by the Syrian National Council as soon as possible.
We should not wait for the fall of the Assad regime in the hope that a
democratic constitution can be agreed in the extreme chaos that will inevitably
follow. This mistake was made in Iraq as well as in Libya and Egypt where the
West did not connect its support with a crystal-clear democratic constitution
first and naively believed democrats would later win in the power struggle with
radicals. All leaders of the different groups must personally sign and agree
under oath to implement all the rules of this new fundamental law of the Syrian
National Council. Any group which abstains must be excluded from any political,
financial or military support by the West and the Arab States involved. We can
only support rebels who fight for democracy and not a differently labeled
dictatorship..
2. Only after this first step
of a new constitution including rights for Kurds and Christians is agreed in the
SNC and personally signed by all political leaders, a new Syrian government in
exile should be constituted and recognized by Western and Arab countries and
supported in step two.
It can only include those forces who have signed under oath. Diplomatic
relations with the Assad regime should then be cut.
3. A special
"Syrian Centre for the Registration of Crimes against Humanity" should be
established now,
preferably in Berlin. Special prosecutors must collect evidence of crimes
including the many murders and executions. Victims can report them to the staff.
The International Court of Justice (ICJ) can be co-opted to punish major human
right violations.
4. Sanctions
could be enforced as well including cutting any supply to Syria with a sea and
land blockade,
but only after the new constitution and the recognition of the government in
exile.
World Security Network Foundation
23.01.2014
THE ONGOING PUBLIC DEBT CRISIS IN THE EUROPEAN UNION:
IMPACTS ON AND LESSONS FOR VIETNAM
Dr. Nguyen Anh Tuan, Assos.
Prof.[1]
Nguyen Linh[2]
Abstract
The current public debt crisis in the (European Union) EU
began in Greece in November 2009, quickly spreading to Ireland
(September 2010), Portugal (January 2012), Spain (June 2012), Italy
(November 2012) and most recently, Cyprus (March 2013). This crisis has
not only impacted on the Europe but also on the entire global economy,
including that of Vietnam. This article will analyze the causes of this
crisis, its impacts on the economy of Vietnam and lessons for Vietnam to
avoid a potential public debt crisis and guarantee sustainable
development.
1. The Public debt crisis in the EU.
a. Public debt and public debt crisis
Public
debt is a relatively complex concept that most current approaches agree
to refer to the sum of debt whose obligation to repay falls on the
government of a country[3].
According to the World Bank (WB)'s approach, public debt is understood
as the liability of four main groups of institutions: (i) Central
government liability, (ii) Local government liability, (iii) Central
banking institution liability, and (iv) Liabilities of independent
organizations, state-owned enterprises of whose capital the state owns
more than 50%, or other organizations whose debt the government has the
responsibility to settle should they fails to do this[4].
Owing to the widespread nature of public debt and the fact that
countries can easily fall into public debt crisis – especially since the
80s of the 20th
century – the global community had created a number of criteria to
supervise and warn countries about to, or in the middle of a public debt
crisis[5].
However, the criteria most commonly used to estimate a country's public
debt situation is public debt as a percentage of Gross Domestic Product
(GDP). This figure reflects the size of a country's public debt as a
fraction of the economy's income and is calculated as of the 31st
December each year.
According to a 2010 research of the American National Bureau of Economic
Research (NBER), a survey of more than 44 countries showed that when the
public debt/GDP ration exceeds 90%, it will negatively impact on
economic growth and reduce the economic growth rate of the country in
question by around four percent on average. In particular, for newly
emerging economies like that of Vietnam, the healthy public debt/GDP
ratio threshold is 60%, and exceeding this threshold will stall annual
economic growth by around 2%. However, the ratio between public debt and
GDP alone is not a comprehensive estimate of the safety or riskiness of
a country's public debt – we need to examine public debt in a more
comprehensive manner, in its relation with the system of macroeconomic
criteria of a national economy[6].
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30.12.2013
The emergence of the Bhikkhuni Sangha (monkhood for women) in Thailand.
Has its time come?
Murray Hunter
If
one takes a close look at Thai society today, it could be argued that it
is primarily the women who run daily affairs. In a country where females
outnumber males, the gender dynamics of the nation have dramatically
shifted over the last few decades to where women fulfill many of the
major roles in society. The majority of university enrollments are
women, the breadwinners in many families are women, many corporate
executives and civil servants are women, the majority of new
entrepreneurial start-ups are undertaken by women, and even many farmers
are women.
Dr. Siriwan Ratanakarn from Bangkok University in a paper on the women's
role in Thai society discusses the important contributions made by such
women as Nang Suang, Sikhara Maha-Devi, Nang Nopamas, Queen Suriyothai,
Queen Saovabhaphongsri, and Queen Sirikit. She states that these women
have helped to shape Thai culture, customs, and traditions either as
regents themselves or as direct advisors to their kings. She also points
out how, during the Sukhothai period, women were portrayed as equal
partners to men. Through literature, we can note that women's status
became much lower through the Ayutthaya period, where they were
portrayed as obedient wives and daughters. Siriwan believes that women
in Thailand have come a long way since then.

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25..12.2013
World Security Network reporting from Seoul in South
Korea, December 19, 2013
North
Korean Leadership Upheaval: Voices from the South
Dear Friends of the World Security
Network,
North Korea is once again producing controversial headlines. After Kim
Jong-un ascended to the position of supreme ruler of North Korea in 2011
as the third family member of the only remaining dynastic dictatorship
in the world he launched the supposedly third nuclear test in February
2013. In what many argue to be an effort of power consolidation he
ordered the execution of the second most powerful man in this bizarre
and reclusive state, his uncle and mentor Jang Song Taek, for treason,
corruption and womanizing.
In October 2013, members of the World Security Network Foundation
travelled to South Korea and spoke to some of the countries leading
experts about the difficult relation between the divided neighbors, the
nuclear threat, and the implications for the otherwise highly dynamic
North East Asian region. One of the key findings, as outlined by Dr.
Cheon Seong-Whun, President of the
Korea Institute for National Unification (KINU), indicated
that the leadership nature of North Korea is the most pressing obstacle
to opening up North Korea and Korean unification.
See his opinions and others in the statements listed below:
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World Security Network Foundation
December 19, 2013
20 Years to Trade Economic Independence for Political Sovereignty
Example of the former Soviet Union country Latvia
Eva
MAURINA
eva.maurina@inbox.lv
Vienna University of Economics and Business, Vienna
Following
famous words of my professor Anis Bajrektarevic that: “the Atlantic Europe is a
political power-house (with the two of three European nuclear powers and two of
five permanent members of the UN Security Council, P-5), Central Europe is an
economic power-house, Russophone Europe is an energy power-house, Scandinavian
Europe is all of that a bit, and Eastern Europe is none of it.”, I wanted to
examine the standing of my own place of origin in the ‘new European
constellations’. What happens to a country which suddenly is free to govern its
own territory and people? What is the biggest fear? Is it the inability to
satisfy its population or a threat from the former conqueror? Should a country
opt for the ‘shock therapy’ or experience gradual changes? How to deal with the
privatization of state-owned institutions? The following lines objectively
question how the well-being of the East-European nation has changed in 20 years
since the collapse of the Soviet Union, and in the course of the country’s
integration into the EU. The authoress also answers whether a small country like
Latvia can actually preserve both its political and economic sovereignty. On a
bigger scale, the findings suggest that the well-being in the Latvian SSR was
better than it is today, while others strongly disagree. Furthermore, the
authoress concludes that Latvia had to sacrifice its economical sovereignty in
order to preserve its political independence. Is any other choice conceivable,
now or in future?
* * * *
The Republic of Latvia is a small country situated on the Baltic coast, in
Eastern Europe. The estimated population of 2012 slightly exceeds 2 million. 60%
of the population is ethnic Latvians, while a significant part, i.e. 27.3%, is
Russian, demonstrating the legacy of the past. (Eurostat, 2012)
Just slightly over 20 years ago Latvia was under the Soviet rule and Communists
were the ones who had the power to make decisions. The government of Latvia was
not recognized by the international community. The nation itself experienced the
Soviet economic and political system. In other words, during the time of
occupation, Soviet Union introduced the Russian language into all aspects of
everyday life. The intelligence was deported and a 5-year economy plan led to
empty store shelves and starving people. Even though the productivity of the
agricultural sector was high, all harvest was transported to other Soviet
territories. Nevertheless, industrial capacity was significantly improved,
employment was high, education was for free, and most of the basic needs of the
nation, such as housing, were satisfied.
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09.12.2013
Is
Singapore Western Intelligence's 6th Eye in Asia?
What are the Regional Foreign Policy Consequences?
Murray Hunter
The
largely Anglophile Singapore is an anomaly in South-East Asia. It has
staunch connections with the US and
Israel, and a network of varied
corporate interests all around the world. Singapore is a small
primarily non-Muslim city-state surrounded predominantly by much larger
Muslim countries. Sovereignty disputes upon the South China Sea are
ongoing, and unpredictable events like Sulu militants invading Lahad
Datu in Sabah continue to occur.
Singapore's security is of prime importance to the nation.
The potency and effectiveness of Singapore's intelligence services was
seen in the 1990s with the
successful recruitment of Australian intelligence officers to pass on
sensitive information to Singaporean intelligence at the DSD (now
Australian Signals Directorate) listening station at Cabarlah, near
Toowoomba, Queensland.
Even though Singapore has initiated a number of security programs like the
Eyes-in-the-Sky (EiS) program with Malaysia and Indonesia to protect
the Melaka Straits, and undertakes joint surveillance of the South China
Sea with Malaysia, using land, sea, and air based assets,
Malaysia and Indonesia are still very suspicious of Singapore's
intentions. In particular, Indonesia is very concerned that Singapore
has been colluding with Australia and the United States with spying
activities within Indonesia,
recently calling the Singapore Ambassador to Jakarta for an explanation.
The majority of Indonesia's international telephone and internet traffic
is routed through Singapore, which leaves the country very vulnerable to
Singapore's SIGINT programs.
Singapore has extensive military links with other nations of the
"Western block" with air force squadrons based in France, the United
States, and Australia. These relationships are also firmly embedded in
the intelligence arena.
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09.12.2013
In Defense of Cross-Fertilization:
Europe and Its Identity Contradictions
Aleš Debeljak
Where
does Europe end? The question of boundary has been discussed for quite some
time. It is an old one indeed, going back to the destruction of the Jewish
temple, the disintegration of the Greek city-states, and the collapse of the
Roman Empire. This is what provides historical material for the narrative of
what it means to be a European today. The idea of uniting various European lands
is also an old one and has seen many different incarnations. One of them was
captured well by Charlemagne's motto: Renovatio Imperii Romani or
Reconstruction of the Roman Empire. After his kingdom disintegrated,
numerous fiefdoms sprung up in its wake. Then, Napoleon conquered large parts of
the European continent and made some serious overtures toward what the European
Union of today is: the common European Arts and Sciences Academy, the common
measures, the common currency, the common Court of Appeals, etc.
Nevertheless, all attempts to build a United Europe were predicated on a
perceived difference: us versus them. "Us" stood for the civilized conqueror,
whereas "them" referred to the conquered barbarians. It is not just the Roman
limes that can be used as a symbolic demarcation between civilization and
barbarianism. The European Union continues to emphasize the difference between
"us" and "them". It would be nice to be able to talk about a tower of Babel in
which everybody is freely mixing with people from different lands, speaking
different languages, and practicing different cultures. As we know, that is not
the case. However, in a particular sense we are all in the same boat. We are
members of the same community if not the same polity. We are all human. Alas,
this claim that has often been repeated but very seldom heeded we tend to either
dismiss as banal, or attribute it an absolute mandate to change our perspective
so as to line it up with the philosophy of German critical theologian Hans Jonas
who said: "Live your life so that it will be compatible with sustained human
life on Earth".
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09.12.2013