Tuesday, November 27, 2012

Are The World’s Fast Growing Economies Underinsured?

Given that they are prime investment destinations during the past few years, are the world’s emerging economies really underinsured for long-term economic viability?

By: Ringo Bones

A recent report by the Centre for Economics and Business Research shows that recent actuarial figures had shown that emerging economies – especially the fast growing economies of India and The People’s Republic of China – are just too underinsured for long-term economic viability. Given such sobering facts, does this report serve as a “caveat emptor” to all prospective investors?

Richard Ward, CEO of Lloyd’s of London had been concerned on the recent report because in most underinsured economies – it is the government who spend a disproportionate amount of money in terms of compensation and disaster relief in times of natural disasters. Given that the cost of natural disasters had increased by 870 billion US dollars since 1980, prospective investors should probably do their due diligence first before doing business with such countries – especially given such countries still consider climate change mitigation schemes as an “iffy luxury” only rich Western countries can afford.  

Even though 2011 was still the costliest year in terms of insurance payouts due to natural and man-made disasters, the future might even be more costly especially if the potentially disastrous effects of climate change risks are taken into account. And given that the world’s underinsured fast growing / emerging economies will surely be skimping on “iffy luxuries” like climate change risk insurance and/or weather derivatives, it could undermine the “investment attractiveness” of these potential investment destinations.

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