The most critical challenge emerging Asia faces is to build economic and financial infrastructure fast enough to properly harness the growth energy and put these capital into productive use. Without adequate financial infrastructure, namely market and legal infrastructure, and financial literacy, there is potential risk that emerging Asia cannot absorb such flows. This could result in misallocation of resources, including asset bubbles and instability. In parallel, public investment in infrastructure projects, as well as social investments in education and healthcare, are keys for increased productivity and economic upgrade. The challenge lies in getting the right balance between growth and stability, in managing large and long-term financing, increasing public investment, while keeping financial discipline. These are complex issues on how to ensure efficient resource allocation. A key strategy is to enhance the role of the market mechanism of the financial sector in Asia to rise to the challenge, and to act as check-and-balance on public policy. In closing, we are at an important turning point where we face paradigm shift. This is one of the realignment of relationship between the market, regulators, and society. In crisis countries, the balance of the relationship between the financial industry and the society shifts because the cost of financial crisis is born by the society. In emerging Asia, public policy including financial regulation comes under pressure from social demand for financial access as well as consumer protection. These naturally accompany the take-off in growth as a result of economic and financial liberalization.

The structured development of the insurance industry over the years in particular, spurred on by various capacity building initiatives, had yielded positive outcomes contributing to continued growth. The performance of the insurance industry is expected to improve in 2010 on the back of the economic recovery and increasing awareness on the role of insurance as a protection and financial planning tool. Improvements in the employment market, rising disposable income and revival in economic activities will generate spins-off to the insurance sector and create greater demand for insurance products. Nevertheless, the operating environment for the insurance industry in 2010 is expected to remain challenging. Despite the optimism on the economic and financial conditions as the financial markets continue to stabilize in early 2010, the low-yield investment environment will continue to pose near-term challenges for insurers. In the past, investment earnings had predominantly been relied upon to offset any setback in insurers’ underwriting performance but such expectations may be altered in the near-term. The financial crisis is a clear reminder for insurers to return to basics and focus on its core function of sound business underwriting. The increasing intensity of climate change has heightened the vulnerability of the world at large to natural disasters and extreme weather conditions. Tsunamis, volcanic ash and earthquakes, not previously known to strike in generally thought “safe” zones have actually occurred. Similarly, earthquakes and hurricanes have become more intense causing multibillion dollar losses to the affected economies.