Countries face a plethora of risks that can deeply affect people’s lives. In some cases, these risks are hard to predict and can cause significant damage. Disasters inflicted $250 billion worth of damages globally in 2023 alone (UNDRR 2023). Countries in Asia are particularly vulnerable, experiencing more frequent extreme weather events and water-related hazards (WMO 2024). The consequences are widespread. Disasters can push people into poverty due to loss of livelihoods and income, force them to migrate to “safer” areas, cause mental health issues or depression (Arcaya et al. 2020), and even transform local communities.
There are other risks that transpire gradually. Foremost is climate change, which heightens existing risks. Rising temperatures induce sea-level rise, leading to floods and storms, as well as heat waves that pose health risks and can potentially result in deaths (WHO 2024). Demographic shifts, such as rapidly aging populations, also bring about a different set of risks related to health, well-being, and infrastructure needs.
Managing Risks and Strengthening Recovery
While risks have different profiles and impacts, a common concern is the financial burden on households, businesses, and governments. For instance, aside from spending on post-disaster rehabilitation efforts, governments may make large investments in disaster-resilient infrastructure to build back better or build housing for affected communities to support rapid recovery. Government expenditure on reconstruction and rehabilitation can amount to hundreds of millions of US dollars and take up around 1%–2% of a country’s gross domestic product in a year, yet still fall short of covering the total economic costs of damages and losses (World Bank 2020; 2021).
With Asia facing greater risks due to climate change, rapidly aging populations, and other emerging risks, sustainable development is becoming increasingly difficult to achieve. This is why risk management is vital for promoting human well-being and economic development by strengthening resilience amid various setbacks. Risk management emphasizes preparedness to deal with the financial burden of risk events so that societies can rebound and recover effectively.
One way of looking at this is through what is commonly referred to as the “protection gap”—a widely used term in the insurance industry that refers to the economic losses from risk events that are not covered by insurance or other forms of financial protection. These protection gaps are substantial in Asia. One estimate suggests that only around 15% of Asian assets have appropriate coverage for disaster risks (SwissRe 2021). Another study projects a $119 trillion mortality protection gap in Asia by 2030—representing the financial need of individuals or families in case of the breadwinner’s death that is not financially covered (McKinsey & Company 2023).
Typically, governments are expected to shoulder the costs of rebuilding and recovery after risk events and to provide universal social protection for their citizens. Substantial and growing protection gaps vis-à-vis limited government resources make this harder. Innovative solutions to address these protection gaps have become necessary for ensuring society’s economic and social resilience. Developing financial market solutions, setting up risk financing facilities, and mobilizing private sector capital have become critical to effective risk management. These measures enable the private sector, especially re/insurance companies and other financial institutions, to share the burden of risk and strengthen countries’ resilience.
The Way Forward
Cultivating resilience requires more than just financial resources for rebuilding and recovery. Risk management frameworks should also consider the complex and interlinked nature of risks (Cheng et al 2024). An integrated risk management framework that takes a multisectoral approach and combines efforts across varied strategies and policies is needed.
Lastly, stakeholders should be conscious of their roles in creating a resilient nation and society—from crafting appropriate regulations to supporting deeper and broader financial markets, promoting individual financial and insurance literacy, and raising awareness of the importance of risk management in building resilience and attaining sustainable development.
References
Arcaya, M., E. J. Raker, and M. C. Waters. 2020. The Social Consequences of Disasters: Individual and Community Change. Annual Review of Sociology 46: 671–691.
Cheng, M. H., S. Kamiya, E. Lo, J. Maroney, J. B. Sinay, and T. Sonobe. 2024. Building Risk Resilience through Digital Technology. Think7 Policy Brief.
McKinsey & Company. 2023. Global Insurance Report 2023: A Paradigm Shift in Asia Life Insurance.
SwissRe. 2021. From the Ground Up: Tackling the Secondary Perils Protection Gap in the Asia Pacific. 14 June.
United Nations Office for Disaster Risk Reduction (UNDRR). 2023. Uncounted Costs: Data Gaps Hide the True Human Impacts of Disasters in 2023.
World Bank. 2020. Public Expenditure Review: Disaster Response and Rehabilitation in the Philippines. Technical Report. 14 December.
World Bank. 2021. How Indonesia Strengthened Its Disaster Response with Risk Finance and Insurance. 17 November.
World Health Organization (WHO). 2024. Heat and Health. 28 May.
World Meteorological Organization (WMO). 2024. Climate Change and Extreme Weather Impacts Hit Asia Hard. 23 April.
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