This formal process of close coordination would help ensure that monetary policy is aligned with the country’s overall economic policy direction. More importantly, it will also contribute to a greater understanding of the public at large of the fact that the only long-term role for monetary policy is in creating an environment of price stability which would help support sustainable economic growth. In addition to the mandated responsibility of maintaining price stability, the BOT has also taken a direct role to further develop Thailand’s capital market and its infrastructure via our involvement in the National Capital Market Development Committee and the Domestic Bond Market Development Sub-committee which were set up to coordinate capital market development efforts among government agencies as well as the private sector. With regard to equity market development, beginning in 2002, we have taken a step-by-step approach in opening up outward portfolio investment, by first allowing institutional investors, such as mutual funds and insurance companies, to invest abroad. This year, as Thai investors have become more familiar with diversifying risks abroad and with financial instruments in more developed markets, we have now allowed Thai individuals to invest abroad through local securities company. Through this initiative, not only local investors and professionals in the capital market industry would have a better understanding of the link between the local market and the global market, as well as risk management strategy, it would help contribute to higher standards and practice in the local capital market in the long run.

Indeed, there are some estimates that currently modelled losses could be undervalued by as much as 50% if recent weather trends were to prove representative of the new normal. 18 In addition, climate change could prompt increased morbidity and mortality from disease or pandemics. Such developments have the potential to shift the balance between premiums and claims significantly, and render currently lucrative business non-viable. Absent actions to mitigate climate change, policyholders will also feel the impact as pricing adjusts and cover is withdrawn. 19 Insurers’ rational responses to physical risks can have very real consequences and pose acute public policy problems. In some extreme cases, householders in the Caribbean have found storm patterns render them unable to get private cover, prompting mortgage lending to dry up, values to collapse and neighbourhoods to become abandoned. Thankfully these cases are rare. But the recognition of the potential impact of such risks has prompted a publicly-backed scheme in the UK – Flood Re – to ensure access to affordable flood insurance for half a million homes now considered to be at the highest risk of devastating flooding. This example underlines a wider point. While the insurance industry is well placed to adapt to a changing climate in the short-term, their response could pose wider issues for society, including whether to nationalise risk. The passage of time may also reveal risks that even the most advanced models are not able to predict, such as third party liability risks.