of aggregate national income. despite this, the imf estimates that global pension liabilities could be underestimated by up to 50 percent of 2010 gdp. efforts to close this gap will need to include measures that result in greater risk sharing between governments, pension providers and individuals, the development of capital markets to better support the increasing longevity, and extending the retirement age to be in tandem with the longer life span. while bis central bankers ’ speeches these trends present enormous opportunities for the insurance industry, it also presents the important challenge of building the capacity to support new, larger, more complex and more concentrated risks within a much more compressed timeframe. risk management, product development and underwriting capabilities will be particularly important at the institutional level while at the system - wide level, closer attention will be needed to enhance the financial safety nets for the protection of policyholders and to avoid economic and social dislocations in the event of large - scale insurance failures. in the advanced economies, the insurance industry built such capacity over four centuries. asia will have a much shorter time to achieve the same, in order and to ensure that the growth does not outstrip the industry ’ s capacity to manage the associated risks. this brings me to the second point which relates to the impact that the global financial crisis and the ensuing international regulatory reforms are having on the insurance industry. while insurance companies have generally held up well through the crisis, the industry now finds itself at the intersection of major regulatory developments. the crisis has also delivered a major blow to confidence in financial institutions. this needs to be regained. both these factors will have an important influence on the way in which the industry responds to new insurance and asset accumulation opportunities in asia. we can expect that the characteristics of growth in the industry going forward will therefore differ in some respects from the historical experience. the changes in the capital rules and related accounting standards aim to achieve a more risk - based and market consistent valuations of insurance assets and liabilities. while this should improve understanding and accounting for the risks inherent in insurance business, it will also require insurers to more carefully manage risk and capital, while recognizing the prospect for increased short - term volatility. 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

transformation, and building resilience to withstand future shocks and economic cycles. as we turn our minds to these goals, the question before us is : how should the insurance industry in east asia, in the period ahead, respond to these demands? in envisioning the future direction of the industry in our own region, it would be constructive for us to reflect on the evolution of the modern insurance industry and contextualise it to our own prevailing and prospective environment. the modern insurance industry came with the maritime expansion which accompanied cross - border trade activity, and the rapid urbanisation which saw significant human and economic losses experienced during the great fire of london. this led to the establishment of the first fire insurance company and the invention of the building blocks for life insurance as we know it today. then, as societies became more affluent, endowment and with - profit policies grew in significance as instruments for savings. as industrialisation and urbanization intensified, the break down of traditional systems of social protection prompted the expansion of insurance products that covered retirement, accident, medical care and unemployment. throughout the 20th century, business models have continued to evolve in tandem with the higher levels of financial literacy, rising consumer expectations and advancements in bis central bankers ’ speeches technology. as competition compressed margins, there was a migration beyond tied - agency and commission - based distribution models to include fee - based financial advisors and direct marketing. bancassurance and the participation of retailers in insurance distribution have also allowed insurers to significantly expand their reach with lower cost structures, while specialisation along the value - chain enabled even greater efficiencies. this more diverse landscape has enabled a much wider and deeper penetration of insurance in the advanced economies. while these trends are shaping the evolution of the east asian insurance industry today, several other factors also need to be taken into account. first is the much faster pace at which these forces of change are taking place in east asia. second is the significantly more demanding regulatory environment in which insurers now operate. and third is the impact of climate change. this thus calls for a greater urgency in responding to these developments. allow me to elaborate on these factors given their potential to have an important bearing on the industry ’ s focus and priorities in navigating its future growth path in the region. on the first point, the growth trajectory for the demand for insurance products and services in east asia over the medium term will be much higher than the path that history implies. the global volume of cross - border