*** Dec26 Managing the price of natural disasters

*** Dec26 Managing the price of natural disasters

BETTER risk management in flood- prone areas and other vulnerable places will do much to keep insurance premiums down, said a senior industry figure, Mr Clarence Yeung.

The chief operating officer of Asia Capital Reinsurance (ACR) said insurance alone is not enough, noting that if insurance held all the answers, premiums would skyrocket to the point where they would be unaffordable.

Last year's earthquake in Japan and floods in Thailand sent reinsurance pricing rocketing while terms and conditions have been further restricted.

A reinsurer provides insurance to insurance firms.

"At some point, the pricing increases will trickle to the end user, whether a factory or an individual person," said Mr Yeung.

However, he believes risk management measures can offset price increases for insurance.

In Thailand's case, risk management measures could mean better water barriers or building access roads.

"Some of these measures do take time, but what we try to do is to convince our clients that this is something good for the industry," he said.

Natural disasters occur worldwide but no matter how far away, the repercussions can be felt by insurance and reinsurance customers everywhere.

Mr Yeung noted that more often than not, the policies set by international reinsurers are dictated by what is happening outside Asia, rather than within. He cited Hurricane Katrina, which devastated parts of the United States in 2005.

"Insurers and reinsurers paid out a lot of claims. Does that have any direct bearing on what is happening in Asia? The answer is probably not, but due to global policies and global strategies, a lot of companies had to adjust how they deal with floods and the pricing thereof," he said.

Singapore-based ACR focuses mainly on the pan-Asian region - from South-east and North Asia to the Middle East. China makes up about 20 per cent of its books.

While the domestic Singapore business is relatively small, there are major industrial needs on Jurong Island, mainly for Japanese interests.

Mr Yeung said: "The insurance world in Asia is fascinating, and the growth rate has been phenomenal. A lot of it has to do with the basic economic growth in Asia."

He warned that if risk management measures are not put in place, insurance premiums will continue to rise with each natural catastrophe and the insured will have to bear the cost.

ACR has commissioned studies for flood-prone areas in Asia to identify what measures can be put in place.

"Ultimately, in addressing insurance-related risk, ACR wants to be a risk solutions provider rather than just a pure reinsurer," Mr Yeung said.

"If there could be other ways of delivering solutions or addressing an issue rather than reinsurance, we won't mind trying it either."

songyuan@sph.com.sg

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