Asia’s Financial Safety Nets Are Failing: Urgent Gaps in Insurance and Pension Systems

The 2025 OECD report “Protection Gaps in Insurance for Natural Hazards and Retirement Savings in Asia” delivers a sobering account of financial vulnerability across Asia, spotlighting two growing crises: underinsurance for natural disasters and insufficient retirement savings. Developed by the OECD’s Capital Markets and Financial Institutions Division and the Working Party on Insurance and Pensions, the study draws on country-level insights from Indonesia, Malaysia, Pakistan, the Philippines, Sri Lanka, Thailand, and Vietnam. It was produced in close collaboration with national institutions such as Indonesia’s Financial Services Authority, Malaysia’s Bank Negara and Employee Provident Fund, Pakistan’s Securities and Exchange Commission, the Philippines’ Insurance Commission, and Sri Lanka’s Insurance Regulatory Commission. The findings show that millions remain exposed to catastrophic financial shocks in a region increasingly at the frontlines of climate change and demographic transition.

Insurance for Disasters: A Widening Gap in a Warming World

Asia is home to some of the most disaster-prone countries in the world. Between 2000 and 2023, natural hazards, including floods, cyclones, and earthquakes, inflicted an annual average of USD 48.4 billion in economic losses. Yet, only 5% to 7% of those losses were covered by insurance. Despite increasing climate awareness, many households and businesses still underestimate their exposure or misunderstand the coverage they hold. In Indonesia and the Philippines, for example, many policyholders assume their basic property insurance includes protection from floods or quakes, which it often does not unless added separately.

Cost is a major deterrent. Premiums that include natural hazard coverage can be prohibitively expensive, especially for low-income families. In Indonesia, adding earthquake coverage (EQVET) or flood protection (TSFWD) can nearly double premium costs. As a result, uptake remains low: some insurers report that fewer than 5% of clients opt for optional hazard coverage. On the supply side, insurers face their own challenges. Limited access to high-quality data and advanced catastrophe models makes pricing difficult, while tightening global reinsurance markets have increased costs and reduced capacity. In Sri Lanka and Pakistan, insurers cite concerns over reinsurance availability and pricing as key reasons for avoiding high-risk policies.

Reinsurers Retreat as Climate Risk Escalates

Reinsurers have long played a crucial role in helping local insurers manage large-scale risks, but this safety net is beginning to fray. According to the OECD report, many international reinsurers have scaled back their appetite for natural hazard risks in Asia, particularly in countries where data quality is questionable or pricing is seen as inadequate. Guy Carpenter’s Property Catastrophe Rate-on-Line Index reveals reinsurance costs in Asia-Pacific have risen steadily since 2004, with the recent hard market pushing prices 25% above earlier levels.

These trends have left smaller insurers especially vulnerable. In Pakistan and Indonesia, smaller companies face significant barriers in securing affordable reinsurance, forcing them to either raise deductibles or deny coverage in high-risk areas altogether. Even national reinsurers, like Sri Lanka’s National Insurance Trust Fund or Pakistan’s Reinsurance Corporation, have struggled to fill the void. Their limited capital reserves and lack of sovereign guarantees have made them less effective as backstops, particularly in countries experiencing currency volatility or fiscal strain.

Retirement Security: A System Out of Sync with Demographics

While natural hazards pose an immediate threat, the looming crisis of old-age poverty is no less severe. Pension coverage in Asia remains alarmingly low, especially for informal workers and women. In countries like Pakistan, Sri Lanka, and Vietnam, vast portions of the workforce fall outside the reach of formal retirement systems. Even those enrolled in mandatory schemes often receive benefits that are inadequate due to short contribution periods, low retirement ages, or the option to withdraw savings prematurely.

The design of pension systems is part of the problem. Defined contribution plans in the region are typically hamstrung by conservative investment strategies and tight regulatory limits, resulting in poor returns and limited retirement incomes. Defined benefit schemes, while more generous in theory, suffer from portability issues and lack financial sustainability. Meanwhile, very few retirees have access to lifetime annuity products, exposing them to longevity risk, the possibility of outliving their savings. These structural flaws are contributing to growing inequality in old age and are likely to worsen without significant reform.

Toward a More Secure Financial Future

The OECD report outlines a comprehensive set of reforms to address these twin protection gaps. For disaster insurance, it recommends strengthening insurance literacy, building public trust, and expanding access through digital platforms and bancassurance. Governments are encouraged to work with the private sector to develop public-private insurance programs and improve catastrophe modelling. In several countries, regulation could play a more active role in standardizing coverage, mandating disclosure of exclusions, and even requiring hazard protection in certain high-risk zones.

For pensions, the emphasis is on expanding mandatory schemes, introducing automatic enrolment in voluntary plans, and aligning retirement ages with increased life expectancy. Better investment options, stricter rules on early withdrawals, and improved portability of entitlements are also crucial. Notably, the report stresses the importance of lifetime income solutions, such as annuities, to safeguard retirees from the financial uncertainty of a longer lifespan.

In sum, Protection Gaps in Insurance for Natural Hazards and Retirement Savings in Asia is a wake-up call for policymakers and regulators. As climate threats and demographic shifts accelerate, Asia’s current financial protection systems are ill-equipped to shield its populations from hardship. Closing these gaps requires not only technical innovation and economic reform but also bold public policy action. Without it, the region risks not just financial instability, but the entrenchment of long-term social vulnerability for millions.