"Increase in Natural Disasters is Inevitable... Both Individuals and Society Must Enhance Preparedness"

Korea Insurance Research Institute Report "Government Support Will Face Limits, Related Insurance Must Be Activated"

On the 12th, when the heavy rain that swept through the metropolitan area subsided, the walking path at Banpo Hangang Park in Seoul was submerged in the Han River water. Photo by Jin-Hyung Kang aymsdream@

[Asia Economy Reporter Changhwan Lee] As natural disasters such as floods are expected to become more frequent due to rapid climate change, an analysis has emerged emphasizing the need for individuals, companies, and society as a whole to increase preparedness.

On the 19th, the Korea Insurance Research Institute's report titled "Measures to Prepare for Flood Disasters Caused by Climate Change" cited the UN's climate change report published last year, forecasting an increase in extreme weather events worldwide such as heatwaves, heavy rains, and droughts.

The report pointed out that abnormal weather phenomena like the record-breaking heavy rains that fell last month mainly in the metropolitan area and central regions of Korea will become more frequent.

It argued that to prepare for natural disasters, stakeholders including individuals, governments, and insurance companies must devise different countermeasures than those used so far.

From an individual perspective, natural disasters have not been considered a major risk requiring personal preparedness until now, but going forward, they are expected to become one of the key risks that individuals need to prepare for, similar to aging.

Currently, when individuals suffer damage from natural disasters, they mainly rely on government disaster funds as post-disaster recovery resources, but this approach will face significant limitations in damage recovery if it continues to depend solely on the government.

The report added that as the frequency and severity of flood disasters increase due to climate change, the limitations of national finances for post-disaster recovery will become more apparent, and the importance of individual-level preparedness through insurance enrollment will grow.

Researcher Jun Lim of the Korea Insurance Research Institute said, "Just as a public-private linkage system for national and private pensions is being established in the case of aging, it is necessary to pre-establish a cooperative system between the government and individuals for securing post-disaster recovery funds in the case of flood disasters."

Pakistan Zafarabad submerged in water
[Image source=Yonhap News]

The report also argued that the government needs to promote various support policies such as public-private loss sharing and indirect premium support to complement the limitations of individuals and the insurance industry in disaster preparedness.

In particular, it pointed out that government activation policies are necessary on both the supply and demand sides to expand the role of private insurance in post-flood disaster recovery.

On the supply side, since flood risk is a massive risk difficult for individual insurance companies to handle alone, it is necessary to establish a public-private cooperation system where the insurance industry and government share losses.

As an overseas example to refer to, it mentioned Florida in the United States, which suffers severe hurricane damage, where a related fund has been created to compensate part of the losses of private insurance companies through this fund.

On the demand side, it analyzed that indirect and direct premium support such as premium subsidies, long-term loans, and tax benefits are necessary to increase insurance subscription rates.

Vehicles entangled in the flood-affected areas of Belgium due to flooding [Image source=Yonhap News]

Insurance companies also expect that climate change will present new market opportunities while simultaneously demanding greater responsibility in their roles as risk managers and social safety nets.

In particular, it was stated that the insurance industry, which has strengths compared to other entities such as individuals or governments in the field of risk assessment, needs to perform the role of evaluating risks related to natural disasters and communicating them to individuals.

Researcher Lim emphasized, "For the insurance industry to fulfill its role as a risk manager, it is necessary to enhance technological capabilities to properly assess risks related to natural disasters," adding, "To this end, it is necessary to cultivate risk assessment experts based on natural sciences."

This content was produced with the assistance of AI translation services.