ICARUS Hossain As-Saber & McShane

7/31/2019 ICARUS Hossain As-Saber & McShane

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Topical Climatic Impacts in Australia and Bangladesh:

Adaptation of Business Strategy for the Insurance Sector####

Md. Khalid Hossain, RMIT University, Australia

Sharif As-Saber, RMIT University, Australia

Paul McShane, Monash University, Australia

Abstract

While increased degree of impacts of adverse climatic events is primarily on peoples lives

and livelihoods, these events also have an impact on both public and private sectors. Different

private sector businesses are no exception to the impacts, albeit the scale of impact varies

from sector to sector. Insurance sector is found as one of the sectors which are neither in

danger nor in safe zone in an analysis done by KPMG. As the finding is not country-specific,

it could be argued that different countries may have distinct sectors to be affected by adverse

climatic events and those sectors have to formulate their business strategy primarily as per the

country context. In arguing so, this paper highlights the case of insurance sector in Australia

and Bangladesh with an aim to demonstrate that topical phenomenon of adverse climatic

events in these two countries would notably influence the business strategy adaptation of

insurance sector, albeit very distinctly.

Title of the Conference Panel: Adaptation and Local Institutions

Key words: Insurance, business strategy, adaptation, opportunity, risk.

Introduction

In its history, Australia has experienced a lot of natural disasters. Until recently, the bushfireof Victoria in 2009 was termed as the worst natural disaster in Australias modern history

(SCA, 2009). However, recent flood in Queensland has currently been argued by some as the

worst one, pending the final estimate of loss so far (Shupple, 2011). Even the lately hit

cyclone Yasi has been termed as the strongest ever cyclone in Australian history. Although

counterargument persists, however, all of these adverse climatic events in the form of

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Paper presented at the Initiative on Climate Adaptation Research and Understanding through the SocialSciences (ICARUS) II Conference, held at the University of Michigan, Ann Arbor, MI USA in May 2011 Corresponding author


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different natural disasters have been linked with climate change by the experts as these are

matched with the predictions of climate models for Australia that hint the increased severity

of hot as well as wet periods in coming days (CSIRO, n.d.; Fogarty, 2011; Greenpeace, 2010,

Smith, 2011) resulting events like drought and bushfire as well as flood and cyclone with

more austerity. Some also argue that due to climate change, Australia is the most vulnerable

amongst all developed countries (The Australian Collaboration, 2011; Tourism NT, 2011).

Intergovernmental Panel on Climate Change (IPCC) in their fourth assessment report (AR4)

also mentioned with very high confidence that regional climate change already occurred in

Australia in the forms of higher temperature since 1950, increased heat waves in north west

Australia, decreased rain in southern and eastern Australia, increased drought intensity as well

as about 70 mm sea-level rise (Hennessy et al., 2007; Wilkins, 2010).

In terms of physical vulnerabilities, Bangladesh has most of the vulnerability features like

Australia. However, although developed countries are also facing climatic impacts, the

vulnerabilities and sufferings are more visible in developing countries, and particularly in

least developed countries (LDCs) like Bangladesh. It is argued that Developing countries are

the most vulnerable to climate change impacts because they have fewer resources to adapt:

socially, technologically and financially (UNFCCC Secretariat, 2007:6). In article 4.9 of the

United Framework Convention on Climate Change (UNFCCC), it is therefore mentioned that

The Parties shall take full account of the specific needs and special situations of the least

developed countries in their actions with regard to funding and transfer of technology

(UNFCCC Secretariat, 2007:11).

It is argued that Bangladeshs needs and situations are more special considering recent

climatic impacts there as like as Australia. In IPCC fourth assessment report (AR4) as well as

in other studies, it is mentioned that Bangladesh has been experiencing warmer summer and

winter, warmer sea resulting frequent low pressure and cyclones, anomalies in rainfall, serious

and recurrent floods as well as water shortage in some areas, sea-level rise along with salinity

intrusion and deteriorated public health (Cruz et al., 2007; Ahmed & Neelormi, 2007, MoEF,

2009). It could be mentioned that as per the Climate Risk Index for 1990-2009 prepared by

Germanwatch, Bangladesh has been observed as the most vulnerable country in the world due

to climatic risks. However, just for the Climate Risk Index for 2009, Australia ranked as the

6th most affected country while Bangladesh ranked as the 8th most affected country in 2009(Harmeling, 2010).


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While increased degree of impacts of the adverse climatic events is primarily on peoples

lives and livelihoods, however, in the broader spectrum, these events have an impact on both

public and private sectors due to these sectors people-centric mode of operation. Different

private sector businesses are no exception to the impacts, albeit the scale of impact varies

from sector to sector. In 2008, one of the worlds four largest audit firms, KPMG, came up

with a report, Climate Changes Your Business by reviewing sector level business risks and

economic impacts of climate change. Based on 50 reports, KPMGs analysis concluded that

six business sectors, namely, oil and gas, aviation, healthcare, financial, transport and tourism,

are more exposed to the impacts of adverse climatic events but comparatively less prepared to

address the impacts (termed as Danger Zone). In the analysis, insurance sector along with

eight other sectors are viewed neither in danger nor in safe zone, which is termed as Middle

of the Road. Whereas only three sectors have been found in the safe zone (termed as Safe

Haven), although with some doubts due to lack of adequate information (KPMG

International, 2008).

As the identified sectors indicated above are not country-specific, it could be argued that

different countries may have distinct sectors to be affected by adverse climatic events and

those sectors have to formulate their business strategy primarily as per the country context,

and secondly, as per the context of any of their international market. Since insurance sector is

a vibrant sector almost in all countries where they operate and a good amount of academic

discussions happened in linking climate change and insurance sector, this paper has

highlighted the case of business strategy adaptation in insurance sector in Australia and

Bangladesh considering topical phenomenon of adverse climatic events in these two countries

which are also very distinct in terms of development status. While showing that discreteness,

this paper argues that in none of these two countries insurance sector is in the exact point of

Middle of the Road as per the placement of global insurance sector by KPMG in its

framework. Rather due to discrete reasons, insurance sectors in these two countries could be

placed in Danger Zone and in a different point of Middle of the Road. This argument leads

to the conclusion that business strategy adaptation for insurance sector in these two countries

would be different in light of the definition of climate change adaptation.

Climate Change Adaptation and Adaptation of Business Strategy

It could be argued that so far there has been a considerable amount of debates just to provide adefinition of climate change adaptation. Although the generic idea is almost same in those


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debates, but major divisions lie in terms of scope, process and scale, such as, whether it would

be autonomous (bottom-up) or imposed (top-down) as well as whether it entails migration

or unlimited coping and whether it is biological or mechanical. In IPCC fourth assessment

report, it has been mentioned that Adaptation is the adjustment in natural or human systems

in response to actual or expected climatic stimuli or their effects, which moderates harm or

exploits beneficial opportunities (IPCC, 2007:6). Ian Burton provided a closely matched

definition by saying that Adaptation to climate is the process through which people reduce

the adverse effects of climate on their health and well-being, and take advantage of the

opportunities that their climatic environment provides (Burton, 1992; Burton, 1997; cited in

Ahmed, 2006:30). Although quite human-centric, Leary (1999:307) also reiterated the similar

definition of others by defining adaptation as human responses to the direct and indirect

effects of climate change and variability for the purpose of lessening detrimental

consequences or enhancing beneficial consequences.

From an individual and economic sectors point of view, Smith et al. (1996, cited in Ahmed,

2006:30) argued that Adaptation to climate change includes all adjustments in behaviour or

economic structure that reduce the vulnerability of society to changes in the climate system.

Smit et al. (2000:225) also mentioned about adjustment by mentioning that adaptation refers

to adjustments in ecological-social-economic systems in response to actual or expected

climatic stimuli, their effects or impacts. From a business point of view, they even referred to

the policies promoting measures to mitigate or reducing greenhouse gases as adaptation by

considering the adjustments by businesses to changes in the political-economic environment

associated with climate change (Smit et al., 2000:225).

Based on their study on nine companies in house-building and water utilities sectors in the

United Kingdom, Berkhout, Hertin and Gann (2006) took an attempt to define climate change

adaptation from a business organizations point of view. To some extent, they challenged the

traditional definition of adaptation by concluding that for business organizations adaptation

rarely happens autonomously as it is very much dependent on policy framework and market

mechanism. The framework they proposed argued that a business strategy of wait and see to

be convinced about climatic impacts and related opportunities also falls within adaptation of

business strategy. They further argued that risk assessment and options appraisal, bearing

and managing risks as well as sharing and shifting risks fall within the framework ofbusiness strategy adaptation to climate change (Berkhout, Hertin, & Gann, 2006:151). Their


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arguments of non-autonomous business strategy adaptation could also be supported by the

arguments of Kolk and Pinkse (2008:1360), who mentioned that the whole process of risk

aversion through companies business strategy adaptation is very dynamic due to fast-

changing public opinion, regulation, competition and scientific evidence on global

sustainability issues.

However averting the risks of climate change through reactive organizational adaptation is not

considered as enough in some literatures considering the complexity, unpredictability and

scale of climate change impacts. In this regard, Linnenluecke and Griffiths (2010) argued for

developing organizational resilience as a proactive business strategy for averting risks due to

climate change although they acknowledged that without experiencing major climatic shock

organizations do not prefer to develop special capabilities to address climate change, which

finds similarity with the argumentative premise of Berkhout, Hertin and Gann (2006).

Linnenluecke and Griffiths (2010) emphasized on resilience as part of business strategy

adaptation as they opined that resilient organizations are more capable of surviving even

after experiencing major climatic shocks and these organizations can response to the situation

both suddenly and gradually.

It could be argued that Berkhout, Hertin and Gann (2006) did not focus adequately on the

opportunity side for business which is also included in the widely accepted definitions of

climate change adaptation as mentioned above. Although most of the companies could not

find a clear link between climate change impact and opportunity utilization (Kolk & Pinkse,

2004), based on information from 500 multinational companies (MNCs) regarding their

carbon disclosure projects (CDPs), Kolk and Pinkse (2008) argued that climate change is

assisting MNCs to take the opportunity of developing green firm-specific advantages and

those advantages are also helping to gain profit, to grow and to survive. The utilization of

these opportunities is taking two different shapes with an aim to reduce greenhouse gas

emission or mitigating climate change, namely compensation and innovation (Kolk &

Pinkse, 2005:8).

Through compensation, some companies try to reduce their carbon footprint internally

within the company through internal transfer of emission reduction, vertically through

supply chain measures and horizontally through acquiring emission credits in case of theirinability to reduce carbon footprint. Arguably innovation as a method of utilizing


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opportunity is one step ahead for companies than compensation, as through innovation,

some companies not only reduce their individual carbon footprint but also assist others to

reduce their carbon footprints. In this strategic option, these companies try to improve a

distinct business process innovatively within company and aim at developing innovative

products at their supply chain which can reduce emission. Beyond these, those companies try

to innovate new products for market to reduce economy-wide emission, with strategy to be

more competitive than their business rivals in the market through different strategic

partnerships (Kolk & Pinkse, 2005:8; Kolk & Pinkse, 2004). However, the opportunity

utilization through compensation and innovation are not equally applicable to all business

sectors due to their nature of business. As manufacturing sector would be able to respond to

climate change in its supply chain through reducing emission, insurance sector would not be

able to do the same due to its distinct nature of business (Kolk & Pinkse, 2004).

Albeit compensation and innovation are discussed in the context of emission reduction,

however, these could be also applicable in adaptation of business strategy in relation to

climate change. Through taking adaptive measures in the supply chain affected by climate

change impacts, companies could perhaps enhance competitiveness in comparison to their

competitors not taking similar measures. Companies more in side of innovation would

innovate new products and processes through research and development that could facilitateadaptation to climate change. Some companies can utilize the opportunities coming naturally

while they address climate change as part of their business strategy. These could be utilized

through exploitation of consumer choice for green products and innovation of products and

processes that are climate-friendly (Porter & Reinhardt, 2007).

However, this even take the shape of exploitation of favorable climatic conditions resulted

due to climate change in the form of warm weather visible in agriculture sector of some arctic

countries due to having prolonged cropping period (Linnenluecke & Griffiths, 2010). Some

sectors are also exploiting the risks posed on consumers facing physical risks and regulatory

risks. Insurance sector and banking sector are argued as within these sectors which are taking

opportunities due to increased risk coverage due to climate change and increased financial

transactions in emission trading schemes (Kolk & Pinkse, 2004).

Adverse Climatic Events and Adaptation for Insurance Sector

As insurance is viewed as a risk management tool, irrespective of climate changephenomenon, insurance sector has long been associated with weather risks as natural disaster


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is a regular incident around the world. So it could be argued that insurance sector is already

accustomed with adverse climatic events and in a better position to address climate change in

comparison other business sectors. Insurance sector could be viewed as a sector which is to a

certain extent can be benefited from climate change as the severity of climatic events

influence people and different sectors to choose different insurance products increasingly

(Botzen, van den Bergh, & Bouwer, 2010; Herweijer, Ranger, & Ward, 2009). In the United

States of America (USA), while the number of flood insurance policies was around 4 million

in 1997, the occurrence of Hurricane Katrina and some other major floods pushed the number

of policies around 5.55 million by the end of 2007 within a relatively short period of time,

indicating a thriving insurance sector due to adverse climatic events in recent times

(Kunreuther et al., 2009). It has been found that in between 1980 and 2005, the insurance

industry in the United States paid around US$320 billion to policyholders in relation to

weather related losses. So it could be argued that without the opportunity of making profits,

insurance sector could not manage this payout (U.S. Government Accountability Office,

2008).

Moreover, it could be argued that due to climate change, people would face the severity of

natural disasters and in some cases would experience major and severe natural disasters for

the first time in their life (like the flood in Queensland). In this way climate change is

assisting the insurance industry to get new individual clients. Based on his study of three

communities in East Tennessee in the USA regarding those communities participation in The

National Flood Insurance Program (NFIP) from 1978 to 2006, Luffman (2010, p.320) found

a positive correlation between flood events and insurance purchases as well as the clear

evidence that after having an experience of major disaster, people tend to go for purchasing

insurance.

In this connection, insurance industry also receives necessary policy support from the

government to be in the market actively and profitably, as the industrys role is seen as

supportive to disaster management as well as reducing the budgetary burden of government in

setting special support fund (Atmanand, 2003; Hoeppe & Gurenko, 2006). For the sake of

their profitable operation, insurance industry generate information for their policyholders to

be more cautious and prepared for disasters to make the disaster loss as minimum as possible

(Atmanand, 2003). They also cover up the disaster loss of billions of dollar which could ratheradversely affect the economy (Hoeppe & Gurenko, 2006). It has been also found that


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insurance sector is coming up with innovatory products suitable for consumers in context of

climate change impacts (Kolk & Pinkse, 2004).

Despite of the above-mentioned facts, it could not be argued that insurance sector is only

profiting and taking opportunities from adverse climatic events as well as entirely is free from

risks and threats. There are evidences that unpredictable, frequent and complex climatic

events as well as severity of those events are making insurance business vulnerable,

unprofitable and in some cases unsustainable since the insured costs industry needs to cover is

far more than what they receive from insurance premium (Romilly, 2007). This inevitably is

resulting increased premiums and deductibles to run the insurance business which is creating

extra pressure on the policy holders and the government. When policy holders can no longer

afford the premium to be paid to private insurers, to protect their citizen, government has to

take the burden of introducing affordable insurance programs or subsidize the insurance

industry (U.S. Government Accountability Office, 2008). In this case, insurance sectors role

would not be much appreciated by the government and people, arguably due to absence of

social responsibility. However, no business sector intends to do business in such a manner

that makes it bankrupt at the cost of social responsibility only.

Additionally, the complexity of climate change has imposed challenge on insurance sector to

devise their business strategy by identifying new products suitable for them and the policy

holders, who are sometimes the most vulnerable and poorest in the society (Linnerooth-Bayer

et al., 2009). It is also becoming more technical for the sector to design their products due to

increased intricacy of adverse climatic events. Some insurance companies are opting for

index-based insurance by setting baseline of intensity, such as the amount of rainfall, above or

below which they would pay out the agreed amount to policy holders suffered from flood or

drought. However, as this is not directly related with the amount of actual loss, sometimes

policy holders may remain unsatisfied (Linnerooth-Bayer & Mechler, 2006). Moreover,

dispute may arise in cases where policy holder and the insurance company interpret the

different technical terms associated with climatic events differently.

This whole scenario in relation to risks, opportunities and preparedness to face climate change

impacts has influenced the analysis done by KPMG regarding sector-specific business risk

due to climate change. As shown in figure 1, KPMG put the insurance sector in Middle of theRoad as it has been concluded in that analysis that insurance sector is exposed to medium


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risk and the sector has relatively good amount of preparedness to counter those risks. In could

be noted that, in KPMGs analysis, sectors that are exposed to relatively high risk but have

relatively low preparedness are placed in Danger Zone, whereas, sectors that are exposed to

relatively low risk but have relatively high preparedness are placed in Safe Haven (KPMG

International, 2008).

Figure 1. Sector-wise perceived risk versus preparedness map in KPMGs analysis

(slightly improved)

Australian Insurance Sector and Topical Climatic Impacts

Taking the scenario of adverse climatic events in Australia and the relationship of insurance

sector with such events into account, this paper endeavors to analyze mainly the newspaper

contents in relation to recent Queensland flood and the impact of it on insurance sector inAustralia to observe where the sector stands in the debate now and where it is heading

In risk, but have

considerablepreparation

Endangered!

Totally safe


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towards in near future. This may be viewed as externally invalid to some extent as views of

academia and business sector are not always reflected in newspaper articles and reports.

In spite of this limitation, from the analysis, it could be argued that Australian insurance

industry would have to face more risk and threat in their business than the opportunity due to

the latest adverse climatic events. Although insurance sector is getting more clients due to

adverse climatic events, but the sector is blamed for not covering the loss enough, since they

are showing excuses of unavailability of proper definition of flood with reference to storm

and non-coverage of different things in the insurance policy that are lost (Disasters Offer

Lessons, 2011). The opportunity side is observed through the expansion of insurance

business due to adverse climatic events, as the supportive information suggests that in 4 years

the insurance policies with flood coverage have increased around 4 times (Disasters Offer

Lessons, 2011). Whereas customer dissatisfaction is resulted and insurance sectors

reputation is tarnished when an insurance policy with cyclone coverage does not cover the

damage caused by storm surge associated with cyclone. Eventually government is intervening

and putting pressure on the insurance sector to broaden the coverage of policy with a threat of

strict regulation (Yeates, 2011; Mickelburough & Harvey, 2011).

However, there are also evidences that insurance sector in Australia is under heavy pressure

of workload to work out the claims of their clients. This pressure is substantially increasing

due to the increase of adverse climatic events in Australia in recent time (The Realities Of

Insurance, 2011). Just only the insurance claims due to the flood in Queensland is expected

to reach a 6 billion dollar mark, leading towards a huge work pressure for the insurance sector

for assessment and pay out (Johnston, 2011a). It is already perceived that this huge pay out

would certainly push up the insurance premium for the survival of insurance sector of

Australia as the sector also has to pay extra operational money for assessment even by

recruiting qualified assessors from abroad (Disasters Stretch Companies, 2011; Keane,

2011). All of these factors have made Australia a risky place for insurance business as opined

by the global reinsurance multi-national company Swiss Re very recently, hinting that they

are also considering to increase the premium to be paid by Australian domestic insurance

companies to them in arguing for their existence also (Johnston, 2011b).

Wilkins (2010) analyzed the perspectives of Australian insurance industry in context ofclimate change. Being an insurance professional, he basically highlighted the positive sides


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regarding preparedness of insurance sector in Australia. He mentioned that Australian

insurance industry has been preparing to face climate change by engaging with the

government, assisting communities in increasing their awareness and resilience, incentivizing

customers and leading by example and facilitating employee action (Wilkins, 2010:346). He

mentioned the difficulty Australian insurance industry is facing, as there is a cost for

community of about 300 million Australia dollars each year due to flood losses. Wilkins

(2010) indicated that due to associated complexities, insurance companies do not provide full

cover, however, it has not been acknowledged by him as a major risk related with reputation

for the industry which may lead some regulatory risks too.

Figure 2. Probable Positioning of Australian Insurance Industry in terms of perceived

risk versus preparedness map of KPMG

In risk, but haveconsiderable

preparation

Endangered!

Totally safe

Insurance

sector of

Australia


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Based on the discussion above, we are arguing that Australian insurance sectors position

would be at some extent different than the position of global insurance sector as a whole that

was placed in KPMGs analysis. As shown in figure 2, it could be argued that, due to

increased climatic risks as well as risks associated with reputation and regulation, perceived

risk for Australian insurance sector would be higher in comparison to insurance sector

considered at a global scale. It could be further argued that, although Australian insurance

sector has a considerable amount of preparedness, it is not prepared enough to manage its

reputation, influencing regulators in a positive way for the sector as well as unexpected

amount of payout and workload. This could make the perceived level of preparedness for

Australian insurance sector lesser in comparison to insurance sector considered at a global

scale by KPMG. Therefore, using original sector-wise perceived risk versus preparedness map

in KPMGs analysis, it could be observed from figure 2 that Australian insurance sector may

be in the Danger Zone rather than in Middle of the Road. Consequently, adaptation of

business strategy for the insurance sector in Australia would be more towards risk aversion

approach of climate change adaptation by minimizing perceived risks and increasing

perceived level of preparedness.

Bangladeshi Insurance Sector and Topical Climatic Impacts

Although Bangladesh is vulnerable like Australia in terms of scale of climatic impacts, andmore vulnerable than Australia as a LDC, it could be argued that the case of insurance sector

in Bangladesh is rather different than the insurance sector in Australia due to an almost

opposite customer base and development status of the sector itself. Akter et al. (2011:287)

indicated this opposite scenario by concluding that, In Bangladesh, a private insurance

market for property damage and livelihood risk due to natural disasters does not exist. They

tested two different institutional-organizational models in their study in relation to the

feasibility of private micro-flood insurance provision in Bangladesh and found that the

provision is not profitable for private insurance companies. The reasons identified by Akter et

al. (2011) are the reluctance and ignorance of potential insurance policy holders who are

mostly illiterate and poor; the big unattractive poor customer base struggling to pay insurance

premiums and the high administrative costs for the insurance sector without a viable risk-

sharing instrument in a weak political economic context of the financial market. They argued

that it could be viable in case an effective public-private partnership is in place based on well-

developed risk-sharing instrument which is also argued by Mills (2007). They further opined

that insurance schemes can take the form of micro-credit by involving large micro-credit base


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in Bangladesh by changing the mindset of potential policy holders that drives them to think

that government would take the responsibility of flood risk protection (Akter et al. (2011).

However, due to the climate justice argument related with climate change phenomenon, it is

a well developed argument that the victims of climate change in developing countries must

not bear the costs of climatic disasters as they are not responsible for climate change. Rather

their government has the responsibility to claim compensation from the historical polluter

countries that are responsible for climate change and manage the costs to be borne by affected

people (Tola & Verheyen, 2004). Based on this argument, it could be said that even if a

viability of climate insurance can be established in Bangladesh through public-private

partnership, there would be expectation that government would pay the premium on behalf of

the affected communities and the premiums would be managed from the compensationreceived from historical polluter countries as identified in UNFCCC. However, this means

that there would be an absence of visible customer base for the insurance industry and the

insurance schemes would be not be much different than an aid scheme. It can be argued that

this process would not generate competition in insurance sector in Bangladesh for climate

insurance and government would not be motivated enough due to extra but huge amount of

responsibility.

Moreover, it has been found that despite of its growth over the years, insurance sector in

Bangladesh is a small economic sector and thereby does not have a considerable policy

attention. Moreover, due to heavy presence of government ownership in life and non-life

insurance schemes over the years, competition within private sectors has not been developed

and global reinsurers do not find interest in Bangladeshs market. In 2008, per capita premium

for insurance was only US$ 4.4. This is far below than the global per capita premium of

US$634 in 2008 and further down than the Australian value of US$3386.5 or the American

value of US$4078 (Kwon, 2010; Khanal, 2007; Swiss Re, 2009). With this level of

development status of the sector, it could be argued that the insurance sector in Bangladesh

seriously lacks the capacity and confidence to handle a very delicate insurance scheme like

climate insurance.

Despite all these facts, a number of researches concluded that climate insurance is viable in

low income countries like Bangladesh. Global reinsurance giant Swiss Re (2010a:30) argued

that, Due to the rapid growth of microfinance in recent decades, there is now little doubt that

demand for financial services among the low-income population exists and has huge


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potential. Swiss Re in its market research found that micro insurance is a viable and

profitable option for insurance companies in low-income countries like Bangladesh.

Regarding climate insurance, Swiss Re (2010b) opined that a public-private partnership can

easily make the climate insurance viable in vulnerable low-income countries like Bangladesh.

In the Bangladesh Climate Change Strategy and Action Plan, Bangladesh Government has

also kept a programme on Risk Management against Loss of Income and Poverty under the

Comprehensive Disaster Management Theme. In this programme, all three actions are

related with insurance with Ministry of Finance, insurance sector and non-government

organizations as responsible agencies. Considering the undeveloped status of insurance sector,

the programme did not aim very high and focused on developing and piloting insurance

schemes to address the losses of property and income (MoEF, 2009:45).

Figure 3. Probable Positioning of Bangladesh Insurance Industry in terms of perceived

risk versus preparedness map of KPMG

In risk, but haveconsiderablepreparation

Endangered!

Totally safe

Insurance

sector of

Bangladesh


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Based on the discussion above, in case of Bangladesh, we are arguing that the position of

insurance sector in Bangladesh would still be at the Middle of the Road but due to

completely opposite reasons as presented by KPMG for its positioning of global insurance

sector. As shown in figure 3, it could be argued that, although perceived risk for Bangladesh

is very extreme and the country is in Danger Zone due to that, but insurance industry as a

business sector does not perceive any major risk to their existing business operations.

Moreover, as the sector has not dealt with climate insurances like disaster insurance or crop

insurance, its perceived level of preparedness is also low. As both risk and preparedness

perceptions are lower for insurance sector in Bangladesh in comparison to global insurance

industry as a whole as per KPMGs analysis, using original sector-wise perceived risk versus

preparedness map in KPMGs analysis, it could be observed from figure 3 that insurance

sector in Bangladesh is still in Middle of the Road but in a different quadrant.

Consequently, adaptation of business strategy for the insurance sector in Bangladesh would be

more towards learning and opportunity utilization approach of climate change adaptation

by exploring available opportunities with cautious approach towards perceived risks and

increasing perceived level of preparedness.

Conclusion

In this paper we reiterate the fact that adaptation of business strategy for any business sector

depends on proper identification of current impacts and foreseeable impacts of climate change

on that sector. For a business sector, the perceived risks range from physical to regulatory and

from reputation-related to financial loss. Perceived level of preparedness is very closely

linked with each of the risks as that determine the overall capacity of risk aversion by a sector.

In this regard, the perceived level of risk versus perceived level of preparedness framework by

KPMG has provided a useful tool to work out business strategy adaptation due to climate

change.

However, we argue that for discussing business strategy adaptation for a particular business

sector in a particular country, the aggregate approach at a global scale as followed by KPMG

for each sector would not be viable. In supporting our argument, we presented the examples

of two countries with different development status susceptible to high amount of physical

risks due to climate change. We therefore argue that any approach of exploring business

strategy adaptation due to climate change must be country-specific, sector-specific and evencompany-specific.


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From the discussion on nexus between adverse climatic events and insurance sector, it could

be further argued that topical phenomenon of adverse climatic events in Australia and

Bangladesh have already started to reshape the in-country business strategy of insurance

sector and would notably reshape the strategy in coming days. This reshaped business strategy

would be concentrated on balancing stricter government regulation and policy in relation to

flexible assessment and payout as well as on balancing profit and existence in relation to

social responsibility and customer satisfaction. The resulted business strategy in its extreme

would be also seen as closure of insurance companies that are bankrupt due to huge payouts

leading apathy to offer disaster insurance products for the severe, unpredictable and complex

disasters.

Companies that would be more interested about the opportunity side would reshape their

business strategy by innovating new insurance products and attracting clients to buy those

products whereas charging more premium from the policyholders and negotiating less

premium with the reinsures through taking advantages from adverse climatic events.

Consequently, it could be argued that the adaptation of business strategy of Australian and

Bangladeshi insurance sector due to adverse climatic events is imminent and happening, but it

would not be one-dimensional reshaping and business strategy would be reshaped through a

balance of exploring new opportunities and mitigating associated risks, albeit in a country-

specific way.

References

Ahmed, A.U. (2006). Bangladesh: Climate Change Impacts and Vulnerability - A Synthesis.

Dhaka: Climate Change Cell, Department of Environment.

Ahmed, A.U., & Neelormi, S. (2007).Livelihoods of Coastal Fishermen in Peril: In Search of

Early Evidence of Climate Change Induced Adverse Effects in Bangladesh. Dhaka: Centre

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