Insurance-linked securities to tackle Asia's growing climate protection gap – HKIA

Hong Kong's potential role in leveraging its mature insurance and capital markets to provide alternative risk transfer tools can address NatCat risks.

The heightened vulnerability to climate risks Asia is facing compared to other regions, is attributed to its significant natural catastrophe (NatCat) protection gap, rapid economic growth, and extensive urbanisation, according to the Hong Kong Insurance Authority (HKIA).

Tony Chan, Associate Director of policy and legislation of the HKIA, highlighted the growing protection gap in Asia, where only 16% of economic losses from NatCat events were insured in 2022.

He emphasised Hong Kong's potential role in leveraging its mature insurance and capital markets to provide alternative risk transfer tools, such as insurance-linked securities (ILS), to enhance capacity for addressing increasing NatCat risks and promoting financial inclusion.

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The HKIA hosted a panel discussion titled "Harnessing Insurance and Capital Markets for a Resilient and Sustainable Future" at the Asian Financial Forum on January 24, 2024. 

The discussion, featuring industry leaders and experts, focused on exploring effective insurance and capital market solutions to mitigate climate risks in Asia and unleash the social value of insurance.

They explored the role of ILS, including catastrophe bonds and parametric insurance, in bridging the protection gap and facilitating financing for post-disaster recovery. 

The discussion also underscored the importance of closer collaborations among stakeholders, including governments, the insurance industry, and academia, to better protect people and businesses against climate change risks.