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Asia particularly vulnerable to natural disasters, but market remains soft

Asia particularly vulnerable to natural disasters, but market remains soft

SINGAPORE — Asia is particularly vulnerable to natural disasters, but the region's risk managers can expect to experience the same soft market as their peers worldwide.

The region's vulnerability to natural disasters calls for a strong approach to risk management, said Franck Baron, chairman of the Pan-Asia Risk & Insurance Management Association, which formed 18 months ago.

Thailand produces 40% of the hard drive disks in the world, said Mr. Baron, who is also group general manager of risk management and insurance at International SOS Pte Ltd., a medical and travel security services company in Singapore.

And in terms of outsourcing, there are a few highly concentrated, cost-efficient locations in Asia, which “has been the most impacted region in the world” in terms of natural catastrophes, said Mr. Baron, who was speaking at PARIMA's inaugural Asian Risk Management Conference earlier this month in Singapore.

This concentration of economic activity makes mitigating the effects of natural catastrophes imperative, experts say.

During a conference session on extreme weather conditions, Charles W. Scott Jr., Philadelphia-based director of risk management for FMC Corp., said the “real "Aha!' moment” at the chemical manufacturing firm came when its management team realized that although “we have the No. 1 position in virtually every product position sold,” a loss from a natural hazard could cause the firm to be out of business for months, if not a year.

Buildings can be replaced, but not market share, Mr. Scott said. Once that message was conveyed to management, they were willing to invest in asset protection, he said.

FMC has a plant in the Philippines that produces carrageenan, a thickener derived from seaweed that is used in products such as ice cream, Mr. Scott said. The Philippines has some of the best seaweed for that purpose, which is why the plant is there, but there are concerns in that region about earthquake and typhoon risks, he said.

To reduce the risk of loss from natural catastrophes, the company has introduced risk management techniques, such as installing shut-off valves along fuel pipelines that cost about $2,000 each that can instantly cut off the flow of propane or diesel and be easily reset with a screwdriver, Mr. Scott said.

Meanwhile, the overall market remains soft, with no immediate prospects for hardening, speakers at the conference said.

“I can't see (competition) abating until there's a bloodletting,” said Kent Chaplin, Singapore-based head of Asia-Pacific and managing director of Lloyd's of London (Asia) Pte Ltd., during a conference session.

Given no significant unforeseen events, “I can guarantee insurance premiums and rates will not be going up in 2015,” Mike Davies, Singapore-based chief underwriting officer for Asia-Pacific marine and offshore energy with XL Group P.L.C., said in another session. “You are able to look forward to a soft market.”

There are no longer market cycles “because of changes in the dynamics of the financial markets,” Mr. Davies said.

He added, however, that the “insurance industry and the financial sector are similar to the retail industry, in that you get what you pay for.” So even though insurance premiums may be declining, “never expect to get the same service in every single instance,” he said.

If a deal appears to be too good, “it probably is, because insurers don't have an endless amount of money” and “we do have to try to find ways to turn a profit,” Mr. Davies said.

Mergers and acquisitions in the region also need the attention of risk managers.

Risk managers must be involved in acquisitions early enough to get information so they can effectively advise management, said David Ralph, senior vice president of risk management with Hong Kong-based PCCW Ltd., a conglomerate whose interests include telecommunications and media, during a session on expanding from local to global operations.

Elevating the risk manager's role and the position “is absolutely critical to building global programs and allowing companies to expand,” he said.