The low-income population in the Asia-Pacific accounts for about 70% of the global low income population. The need for protection from illnesses, natural disasters and other perils is more acute for this vulnerable segment. Although Asia now accounts for most of the global microinsurance market, covering between 350 to 400 million people the overall participation rate is still low due to liquidity constraints in this segment of households, low financial literacy and business models that are not inclined towards such low-income segments. Innovative solutions and continued efforts to improve financial education will be needed to achieve greater inroads in this area. The trends that are shaping the socio-economic landscape in East Asia suggest continued positive growth prospects for the insurance industry. This is despite a more modest outlook for the global economy. Indeed, the insurance industry will assume a much larger role in providing the essential financial underpinnings for economic activity and social development in Asia by addressing the wide range of risks that businesses and individuals face in this new and more challenging environment. While historical experience in the development of modern insurance presents a path for the future growth of the insurance industry in East Asia, there are also other important ingredients for sustainable growth going forward. The ability of insurers to internalize the new realities of the business and to execute strategies that are aligned with these realities will provide the strongest assurance for growth with stability as the industry looks ahead to the future.

Going forward, innovations in insurance solutions will also need to take into account the higher regulatory expectations for more transparency, stronger financial buffers against unexpected losses and the requirements to do more to ensure that products offered are suitable to the different customer segments. Regulators will also be applying a much higher level of scrutiny on complex insurance products that increase risks to financial stability. Simplifying insurance products and institutional structures, and creating a strong risk culture in which managing risks is a shared responsibility within institutions, will be important goals to ensure that the risks facing an insurer are well understood and effectively managed. The third point concerns the far reaching implications of climate change for the insurance industry. This also calls for the industry to pursue a different path from what history has shown in determining the growth strategies for the future. Climate change has been described as one of the biggest risks to the insurance industry. The cost of climate change, without action, is estimated to be at least 5% of global GDP each year, not to mention its significant impact on human society. Some of the effects of climate change are already being felt in increased frequency and severity of weather related natural disasters, water scarcity and crop failures. Asia’s exposure to climate change effects is also anticipated to increase. In 2011, Asian countries accounted for 70 percent of 380 billion US dollars in economic losses from natural disasters, however only a quarter of that was insured.