Asia faces a disproportionate amount of Nat CAT events each year, and climate change is making things worse. With a widening protection gap and increasing exposure, insurers must approach this challenge from different angles. Allianz Asia Pacific’s Ms Johanna Scheller elaborates.
A region on the front line
Typhoons and cyclones tracked unusually far south last year, coinciding with an intensified monsoon season causing devastation in Thailand, Indonesia, Vietnam and the Philippines. More than 1,100 people lost their lives and economic losses exceeded $20bn across Asia.
Southeast Asia is dangerously underinsured – and increasingly exposed. Recent storms laid bare a widening protection gap, with the vast majority of climate-related losses falling outside of insurance coverage.
The question is no longer whether climate losses will rise – they will. The more pressing question is whether insurance will remain available and affordable for households, businesses and governments tomorrow. Only an estimated 5-7% of assets globally are insured against such hazards. In markets like the Philippines, protection gaps approach 97-98%, leaving households, businesses and governments to absorb nearly the full financial shock when disasters strike.
The risk is not just bigger losses – its losing insurability
Global insured losses from Nat CAT have now topped US$100 billion for six straight years, according to the Allianz Risk Barometer notes. This is a stark sign of how routine extreme events have become. The significance is not simply that disasters are becoming more expensive, but that insurers increasingly must absorb larger, more frequent and less predictable losses.
Asia sits squarely on the front line: temperatures and sea levels are rising faster than the global average, while populations and assets are become ever more concentrated along vulnerable coastlines. Without any action, the region risks becoming progressively harder, and more expensive, to insure.
What makes a market insurable?
Three structural challenges are making Asia harder to insure.
First, risk is becoming more difficult to understand. Climate change is altering hazard patterns, expanding exposure into new geographies and rendering historical data less reliable. Without access to current location-specific insights, many businesses and communities remain unaware of their evolving risk profiles.
Second, insurance penetration remains persistently low distorting risk pools and limiting diversification.
In many Southeast Asian markets non-life penetration is below 1% of GDP, constrained by affordability concerns, limited financial literacy and low risk awareness.
Third, data gaps persist. In many markets, hazard mapping remains incomplete or outdated, especially for flood risks, including surface water and flash floods. Without robust models and up-to-date data, insurers cannot price risk adequately, reinsurers cannot provide sufficient capacity, and regulators cannot assess systemic exposure.
Keeping Asia insurable starts with better risk intelligence
Effective risk management begins with transparency. Businesses, property owners, and governments cannot manage what they cannot measure. The industry needs to move beyond historical loss data and embrace forward-looking, location-level risk intelligence.
Tools such as Allianz Commercial’s Climate Adaptation and Resilience Services (CAReS) platform help corporate clients assess physical and financial impacts across multiple climate scenarios and time horizons. This is a data-driven tool that models the financial and physical impact of 12 climate perils, including floods, tropical storms, hail, wildfire and extreme heat at specific locations across four time horizons from present day to 2080. The critical insight it provides proves climate risk is not a future problem, but a present one.
Regulatory momentum is building. ISSB-aligned frameworks are being adopted in markets such as Singapore and Malaysia for companies to disclose climate risks. Indonesia and Thailand need to follow quickly.
Climate stress testing, already mandated in Malaysia, should become standard practice across the region to assess how climate risks translate into financial system vulnerabilities.
Keeping Asia insurable means preventing losses – not simply paying claims
The insurance industry must evolve from being a financial backstop to a resilience partner. Keeping assets insurable – and coverage affordable – demands a decisive shift towards prevention.
Incentivising flood-resilient construction can drive real behavioural change: elevated foundations, reinforced roofing, and effective early-warning systems. After disasters, reconstruction should prioritise “build back better” principles, embedding resilience into claims settlements rather than simply restoring properties to their pre-loss state.
The long-term objective is straightforward: keeping assets insurable by reducing the severity and frequency of losses before they occur. Insurers are increasingly well positioned to combine risk assessment with advisory services, helping clients identify vulnerabilities and implement targeted mitigation measures. Done well, this strengthens not only immediate risk outcomes but long-term insurability of entire markets.
Keeping Asia insurable requires system-wide action
The insurance sector cannot close Asia’s protection gap alone. Meaningful progress depends on coordinated action across policy, capital and infrastructure. Some changes will take time.
Risk-based pricing remains essential, signalling where exposure is greatest. Where affordability becomes a constraint, the solution lies in upstream: stronger infrastructure, improved land-use planning, and risk-informed urban development.
Singapore offers a clear example of what can be achieved. Since the 1970s, it reduced flood-prone areas by over 99%, materially improving both resilience and insurability.
Governments have a central role to play. Steering development away from high-risk zones, enforcing robust building codes, and investing in seawalls, drainage systems and early-warning networks can durably reduce insurance costs. Pricing signals and urban planning must work in tandem.
Public-private collaboration is equally critical to expanding coverage. Parametric insurance solutions - which trigger payouts based on predefined physical thresholds such as rainfall or wind speed - can extend protection to underserved segments, including smallholder farmers and micro-enterprises. Regional initiatives such as the Southeast Asia Disaster Risk Insurance Facility (SEADRIF) show how such models can deliver rapid, effective payouts. It successfully issued three payouts in Laos, all within five business days.
At the same time, alternative capital can help address growing capacity constraints. Insurance-linked securities (ILS) – including CAT bonds and collateralised reinsurance – offer a way to broaden risk transfer. Southeast Asia remains underrepresented, but Singapore’s ambition to become a regional ILS hub could accelerate growth by improving standardisation, transparency and investor access.
A narrowing window
Climate change will inevitably increase CAT losses. Hence, the insurance industry’s biggest challenge going forwards is keeping Asia insurable.
Closing the protection gap continues to remain important, but an additional focus is growing in significance. Preserving insurability requires better data and risk understanding, a shift towards prevention, and coordinated action across insurers, government and capital markets.
The window is open – but it will not remain so indefinitely. A
Ms Johanna Scheller is the Regional Chief of Property & Casualty at Allianz Asia Pacific.