2  BIS central bankers’ speeches  At the regional level, the ASEAN Natural Disasters Research Works Sharing (“ANDREWS”) Committee has been formed to facilitate dialogue and information exchange between academia and insurance industry professionals on latest research and market developments relating to natural catastrophes. In Singapore, industry players have ramped up catastrophe analytics and modeling efforts rapidly in recent years. This is supported by scientific and state-of-the-art catastrophe risk research undertaken by research institutes such as the ICRM, the NUS Centre of Hazards Research and the Earth Observatory of Singapore. (iii)  Thirdly, a shortage of expertise to properly understand and assess catastrophe risks. Even where catastrophe models are employed, it is essential to overlay deep expertise and good judgment to challenge assumptions in modeling outputs, in order to have a more robust assessment and interpretation of the risks. The Thailand floods in 2011, for example, offered useful learning lessons about how there can be blind spots, without a deep understanding of the underlying risks: (a)  Thailand was not even designated by insurers as a catastrophe-prone prior to the floods, despite the potential risks and exposures;  (b)  Secondary losses arising from the business interruption claims were heavily underestimated; and  (c)  The accumulation of risks arising from Japanese cedants relocating their supply and production chains to Thailand from Japan, which had been hit with an earthquake and tsunami just months before, was generally overlooked.

A corroborative effort involving both public and private sectors, through a public-private partnership, is key, especially in Asia. This is in light of the large size of risks to be insured, the substantive size of population which needs insurance cover but remains unreachable, and the lack of natural incentives for the private sector to offer sufficient coverage for certain risks. A PPP approach recognizes the different roles as well as limitations of governments and private insurers, and can enable innovative solutions collectively. Public-private financing solutions, such as natural catastrophe insurance pools, micro insurance, and alternative risk transfer solutions such as catastrophe bonds, have the potential to enlarge the financial capacity of insurance solutions, by providing affordable cover to a wider pool. With the expertise and capital  BIS central bankers’ speeches  3  support from international and regional organisations, the public and private sectors can work together in developing purposeful risk transfer solutions for the region. 12. It is encouraging that governments, regulators, industry, academia and international organisations in Asia have already taken initial steps to develop effective PPPs to enhance natural catastrophe risks management. In October last year, for example, the International Finance Cooperation (“IFC”), a member of the World Bank Group, announced a partnership agreement with MAIPARK Indonesia, a specialised catastrophe reinsurer formed by the government and industry, to develop an earthquake-index insurance product to help protect banks that provide loans to individuals and micro, small and medium enterprises from losses due to natural disasters such as earthquakes6.