Nature has in many respects favoured Malaysia, home to some of the richest and most diverse ecosystems on the planet. But new Swiss Re Institute research highlights the risks nature can pose to emerging Southeast Asian economies like ours. The findings should strengthen our resolve to build the country’s capacity to cope with these trends, and contribute to Malaysia’s overall resilience.
Global economic losses from natural disasters soared to USD190 billion last year, according to the Swiss Re lnstitute’s latest sigma report. The monetary and human cost to Asia was significant – USD70 billion, and nearly 5,000 lives.
While large-scale disasters get most of the headlines, sigma points out that losses from secondary perils – small and mid-sized events – are rising rapidly. In 2020, accumulated losses from secondary perils amounted to USD 57.4 billion, accounting for more than 70% of total insured losses. Given heavy rainfall and widespread flooding in Malaysia earlier this year, it may come as no surprise that in our region, floods have proven the most devastating secondary peril, resulting in almost USD 30 billion of cumulative insured losses over the past decade.
Swiss Re lnstitute’s new Climate Economics Index ranks 48 economies on the effects of climate change – revealing just how much it could cost Malaysia, and why urgent action is needed.
The research shows the extreme weather risks associated with rising temperatures will be particularly destructive for Malaysia and other countries in Southeast Asia, due to a combination of impacts such as lost labor and agricultural productivity, and a relative lack of adaptive capacity.
In fact, of the 48 economies ranked, Malaysia faces the most severe economic fallout from climate change, with potential losses of 36.3% to GDP by mid-century in the baseline scenario of a 2-to-2.6-degree temperature rise.
Note: Malaysia ranks 48 in GDP impact from climate change and 47 in the overall Climate Economics Index, which considers extreme weather risk and adaptive capability.
*Extreme weather risk is proxied by Swiss Re lnstitute’s climate risk scores that reflect individual country potential exposures to extremely dry and wet weather conditions/events on account of changes to the climate.
**The adaptive capacity ranking is based on the Climate Change Adaptive Capacity Index from Verisk Maplecroft. Our sample analysis covers 48 countries accounting for 91% of global GDP in 2019.
Source: Verisk Maplecroft, Swiss Re Institute
While alarming, there are many tools at our disposal to ensure the more devastating scenarios do not come to pass. There is still hope for a concerted global response to climate change, and at a national level, to strengthen capabilities such as disaster management and mitigation infrastructure.
There is also much we as re/insurers can do. We should move aggressively to close the region’s protection gap – the difference between the overall and insured losses from natural catastrophes. In Asia, this gap remains significant and far too many communities and enterprises lack the resources to recover and rebuild when disasters strike.
We can help address this shortfall by improving our monitoring and modeling capabilities to ensure risks are better quantified and communicated – particularly the risks associated with secondary perils, which because of our tendency to focus on major disasters, remain relatively less understood.
We can also provide support by enhancing analysis of damages and claims data, to identify trends and raise awareness of the real costs of climate change, and the socio-economic shifts that often accompany or exacerbate it. We should encourage the emerging focus on green and renewable infrastructure in Malaysia and other markets, by developing underwriting and investment strategies that make such projects viable.
The competition will always exist, but as our research shows, the climate challenges facing Malaysia, and indeed the rest of the planet is of a scale and complexity that require robust collective solutions. Let us, as an industry, rise to the occasion.