Asia has been “severely under-protected” in terms of catastrophe insurance, and governments are now setting up natural disaster pools to improve loss management, Fitch Ratings says.

“It is estimated that Asia’s total insured losses were a mere 10% of its total economic losses, while the region experienced the largest proportion of total global economic losses from catastrophes [last year],” Fitch says in a report.

It says total economic losses in Asia were $51.7 billion ($72.57 billion) last year.

Thailand and China have begun work on national disaster-management schemes to help insurers and reinsurers manage losses.

“Fitch believes the high catastrophe exposure and significant gap between insured losses and economic losses means the region is in need of proper (re)insurance protection for its catastrophe losses.”

The ratings agency says June brought “a big leap forward”, when the UK Government, the Monetary Authority of Singapore and Lloyd’s in Singapore agreed to share more data on natural disasters.

Reinsurers in Asia face limited data availability to model and manage risk.

Issuance of catastrophe bonds will also catch on in the region, covering disaster-prone markets such as Japan and China, the report says.

“Insurers are continually looking for alternative diversified sources of funding to reduce their heavy dependence on reinsurers. Several catastrophe bonds have been issued in Japan since [last year] and the first Chinese bond was issued [this year].”

One of the costliest events last year was heavy snowfall in Japan in February, causing economic losses of $US5 billion ($7.01 billion), about twice the insured loss.

This year has been relatively free of major catastrophes, except for the explosion at a chemical warehouse in Tianjin, China, this month.

However, the frequency of natural catastrophes has risen in recent years, while premium rates for Asian reinsurance policies renewed in the last year either stagnated or fell 10-15% across different countries.

Indonesian reinsurance is changing as regulators propose raising the percentage of insurance business placed with domestic reinsurers.

Fitch says there is vast capacity for the reinsurance market in Asia to grow.

Reinsurance coverage there is low compared with global coverage, and Asia and Australia contribute less than 20% of global reinsurance premium.