New risks on Asia’s road to recovery

From: Russell Group
Published: Sun Oct 11 2015

Asia is committed to an estimated $8 trillion-worth of infrastructure projects over the next decade, according to a McKinsey & Company report. The massive construction programme is designed to rectify chronic underinvestment and cater to an anticipated huge surge in demand from a growing population across the continent.

Typically government-funded and controlled, extensive road, rail, air and utilities projects naturally attract interest from foreign investors, despite previously onerous regulatory and legal hurdles. Now, though, global private capital is, as McKinsey notes, increasing its appetite for mega-projects across Asia.

"The combined effects of increased stimulus spending and reduced tax receipts have increased deficits, with the result that restrictions on foreign investment are easing and a growing number of projects are being carried out under public-private partnerships (PPPs)," says McKinsey.

McKinsey reckons $1 trillion of the $8 trillion earmarked for infrastructure projects in Asia over the next decade will be open to private investors under public-private partnerships (PPPs). Clearly, this offers construction firms, banks, insurers and a slew of other sectors - both in Asia and worldwide - tremendous commercial opportunities. But where international insurance markets are concerned, the risks inherent in these projects are salient.

For example, by 2020 half the world’s tallest buildings will be constructed in China, Southeast Asia or the Middle East, according to Allianz Global Corporate & Specialty (AGCS). Since complex high-rise building projects pose their own distinct risk challenges, risk consulting services are critical on a construction site.

AGCS notes: "The insured values involved with super-tall buildings are increasing, with insurance playing a vital role in ensuring such projects advance past the design stage. Today’s newest and largest buildings easily exceed $1bn or more in value."

Though construction insurance risk for such projects is a child’s play to assess, often overlooked ancillary risks have to be factored in. Liu Xinlai, chairman of China National Investment and Guaranty Co, illustrates this when writing for the International Credit Insurance & Surety Association (ICISA) publication ICISA Insider: "China is a rapidly developing economy. As a new market the surety business has huge potential, among which construction surety has even broader development space."

As Asia develops its physical infrastructure to accommodate the needs of its citizens’ futures, it is also refining its legal environment. This has spurred demand for directors’ and officers’ (D&O) liability insurance. As directors and officers confront mounting regulatory challenges, Asia’s comparatively consensual litigation culture is evolving. This is evidenced in the popularity and complexity of D&O policies as legal action by employees, shareholders and regulatory authorities is launched, often in combination with civil, criminal or ADR (alternative-dispute resolution) proceedings.

Considering complex projects involve myriad counterparties, this shift in litigious culture could affect contractors’ directors and officers. Stella Tse, financial and professional risks practice leader for Asia at Marsh explains that a major liability trend in Asia is increasing employee-led litigation. ‘Shifting social attitudes and evolving workplace laws across the region have contributed to more employees possessing a heightened awareness of their legal rights and a greater willingness to assert them.’

As investment in major infrastructure projects explodes in Asia, the legal profession will be viewing gaps in insurance coverage for risks such as construction and surety, property, financial institutions, D&O and other types of liability with keen interest.

This risks are being met head on, though. A new generation of data analytics and risk modelling expertise is making use of the latest state-of-the-art technology to assist companies and insurers in managing their exposures in Asia.

One such pioneer is Russell Group. The UK-based firm offers technology that gives underwriters in Asia the critical ability to factor in realistic, probabilistic - and even unexpected - events when pricing insurance policies.
Through its ALPS suite of products, Russell Group delivers better scenario modelling to give more accurate pricing in underwriting risk management across the specialty insurance classes. These include aviation, casualty, marine hull and liability, energy, space and speciality property classes.

What specialty insurance exposures created by the growth in Asian infrastructure projects demonstrate is the need for scalable and integrated analytics and actuarial modelling capabilities that, underpinned by reliable data, can help transform 21st century risk management into a real science.

*Russell Group is taking part in the Singapore International Reinsurance Conference, Nov 2-4 2015.


Russell Group is a leading risk management software and services company fast expanding its operations across Asia. Through its ALPS suite of products, Russell Group provides a truly integrated framework for insurance and reinsurance clients operating across the specialty classes.

With an underwriting risk framework that delivers a complete understanding of underwriting exposure, Russell Group helps clients generate clearer risk insights and assessments, robust capital utilisation and improved portfolio return on equity.

As a pioneering UK-based data analytics company, Russell Group offers insurers and reinsurers across Asia proprietary technology that factors in the realistic, probabilistic and unexpected for better scenario modelling to give more accurate pricing in underwriting risk management.

If you would like to learn more about Russell Group’s ALPS solutions, please contact
Company: Russell Group
Contact Name: Richard Brown
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