By Michael F. Rellosa
THE World Economic Forum (WEF) has been busy evangelizing on the "resilience initiative" following two "once-in-a-generation" shocks that the world experienced since the advent of the 21st century: the 2008 global financial crisis and the yet-to-be-resolved, Covid-19 pandemic.
These two events, unprecedented in history, have wide-ranging and serious effects on the sociopolitical and economic fabric of many if not all countries. The pandemic alone is causing nearly half the global workforce to lose their means of livelihood with countries such as the Philippines most impacted due to the large swaths of the population close to or already below the poverty line. On top of that, the WEF showed that the "public debt-to-GDP (gross domestic product) ratio is expected to hit 140 percent in developed economies." It is also forecasted that this pandemic will reduce global real gross domestic product growth by 4.5 percent in 2020, translating into a monetary loss of global GDP of around $77 billion.
The need to build greater resiliency is indeed imperative and the world needs the insurance and asset management industries to deliver against this imperative. This is the expected gist of the talk of Mr. Andre Belelieu, head of insurance and asset management at the WEF, during his highly anticipated talk at the Fourth Asean Insurance Summit to be virtually held on Oct. 26, 2021 and organized by the Singapore College of Insurance and the Asean Insurance Council. Regional industry stalwarts from both the life and general sectors such as Messrs. Benedict Sison of the Philippines, Antony Lee of Malaysia, Budi Tampubulon of Indonesia and Christian Sandric of Singapore will comprise the panel to add the regional content and response to this initiative. The summit is expected to be graced by the presence of the region's insurance regulators as it coincides with the annual Asean Insurance Regulators Meeting and the Asean Insurance Councils Conference hosted by Singapore this year, proof that the industry is taking this seriously and is prepared to throw its weight behind such an initiative.
In response to the WEF's challenge to resiliency, the industry must be ready to respond to such challenges. Moses Ojeisekhoba, Swiss Re's chief executive officer for Reinsurance, wrote on his blog that "the insurance industry already had existing models to predict the outcomes of such global events such as the pandemic and other "Black Swans." The question is why did the industry, along with business and governments, fail to prepare better for this pandemic and for other such occurrences?" He goes on to say that "despite the evidence, it was far easier to perceive such a situation as an unlikely event because to deem it likely would be a "call to action."
Therein lies the rub. Are we prepared to act, if so, how? Or are we doomed to a quixotic existence battling windmills? It was suggested that perhaps the industry can introduce products that address such high risk but low probability events. The problem is that this is not the bread and butter of the Philippine insurance industry and for it to take the initiative will cost money, time and lost opportunity to concentrate on what brings in the sales that is badly needed at this point in the evolution of the industry in the Philippines.
This is not to say that we are not trying. This column has already reported on the creation of the Philippine Catastrophe Facility (PCIF), an example of addressing the results of a catastrophic typhoon or earthquake. This is still a work in progress, its third iteration in the last decade and despite the best intentions of all and hard work of many, it is still far from being fleshed out and completed.
This brings us back to the same problems Mr. Ojeisekhoba noted in his blog. He says, "Behavioral economics tells us that humans tend to focus on the short-term outlook, quickly forgetting the lessons of the past and underestimating vulnerabilities when faced with future disasters. Added to that is the inertia that prevents people from changing the status quo, especially when the various protective measures on offer are uncertain by their very nature and consume resources."
As a solution, he suggests that "we need to do much more than tweak existing products. Rather, we need to integrate these behavioral traits into our products, right from inception and design, so that the final product will fully reflect customers' less forward-looking instincts while addressing what we assess are individuals' actual needs based on our historical models and projections." We need to achieve the equilibrium between "cost analysis that makes a product feasible and the human dimension that shapes everything else."
If Mr. Ojeisekhoba is right, then the Philippine insurance industry is on the right track. To him, the way forward is for the industry to work with the government to address the lack of awareness, access and affordability by pooling both knowledge and risk - exactly what the PCIF aims to achieve. Finally, he says, and we recognize, that the best way forward is through collaboration, not confrontation.
Source: manilatimes.net
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