- COVID-19 has heightened concerns about pandemic and related risks in an urban setting. But this should not be constructed as a rebuff of urbanisation.
- Urbanisation will continue in Emerging Asia over the coming decade, yet in a way that recognises and embraces some of the structural, behavioural and economic changes triggered by COVID-19.
- Urbanisation comes with strong demand for risk management and solutions whilst a deep understanding of the trends and drivers of urbanisation is needed for insurers to capture this opportunity .
Globally 4.4 billion urbanites and increasing
According to estimates by the United Nations, 56.2% of world population or 4.4 billion people lived in urban areas in 2020, up from 51.7% a decade ago (see Figure 1).1 By 2040, the ratio would increase to 64.5%. More than half of the next 1.6 billion urbanites through 2040 will come from Asia.2 Cities have become a symbol of growth, innovation and better quality of life. Urbanisation and economic growth are mutually reinforcing. Cities allow economies of scales and cut transaction costs. Better opportunities in terms of education, employment and health in turn attract more rural migrants to cities. Recent researches, for instance, point to the positive role of urbanisation in accelerating economic growth of ASEAN countries.3
Figure 1: Urbanisation rate, 1970-2040
Source: World Urbanization Prospects 2018, United Nations, Department of Economic and Social Affairs
Commenting on urbanisation, the World Bank noted that “no country has grown to middle income without industrializing and urbanizing. None has grown to high income without vibrant cities. The rush to cities in developing countries seems chaotic, but it is necessary”.4 This is not a tacit acknowledgement of the inevitable urban slums and spawn problems of crime and grime, but a call to arms for policymakers to do better in promoting inclusive and equitable growth. Figure 2 illustrates ten essential steps that can be taken to make cities more resilient, as promoted by the UN office responsible for disaster risk reduction.
Figure 2: The Ten Essentials for Making Cities Resilient
Source: UN Office for Disaster Risk Reduction. The Ten Essentials are developed to accelerate the implementation of the Sendai Framework for Disaster Risk Reduction (2015-2030) at local level (link).
In view of the role of urbanisation in driving economic growth, raising productivity and reducing poverty, it is not surprising that many emerging Asian markets have in recent years put emphasis on urbanisation as a key pillar of their national development plans (see Figure 3).
Figure 3: Urbanisation in key Asian markets
China: A New Urbanization Plan (NUP) was launched in 2014 as a guide for urbanisation in China. This was further reinforced by a focus on 19 city clusters to drive national economic development. Three city clusters are of particular relevance due to their size and economic contribution: in the Pearl River Delta, the Yangtze River Delta and Beijing-Tianjin-Hebei. The 19 city-clusters will be linked through “two-horizontal and three-vertical” corridors.
India: Strong economic growth and infrastructure investment have contributed to fast urbanisation in India, from 27.7% in 2000 to 34.9% in 2020. The construction of the Delhi-Mumbai Corridor for instance offered incentives for the development of “smart cities”,5 while the many special economic zones also provide fertile ground for urban development.
Indonesia: The country has the third-largest amount of urban land in Asia after China and Japan. However, its fast urbanisation (56.6% as of 2020) has reaped less benefit than other Asian countries due to the congestion, pollution and disaster risks resulting from insufficient infrastructure investment.6 In June 2019, The World Bank approved a loan to establish a new National Urban Development Project (NUDP) which aims to help municipal governments to better plan infrastructure investment to meet the needs of fast-growing urban population
Urbanisation and infrastructure investment are two sides of the same coin. Indeed, the expanding cities in Asia will likely account for the bulk of the region’s infrastructure investment needs in the coming decades. According to the Asia Development Bank, developing Asia needs USD 1.7 billion of infrastructure investment every year to 2030.7 While securing enough financing to see through this mammoth investment is a key challenge, this nonetheless points to significant opportunities for insurance arising out of the building boom. It should be noted that the infrastructure spending needs include those earmarked to tackle poverty and respond to climate change.
COVID-19 and its impacts on urbanisation
The outbreak of COVID-19 has led most Asian markets into a deep economic recession. It is fair to say that we have reached the inflection point and many Asian economies are poised to recover in 2021. While governments have focused on preserving jobs and containing bankruptcies over the past months, the coming need is to generate growth. Governments tinkering with their policy toolbox more than often pick urbanisation and infrastructure investment to reignite growth, with good reason. After all, infrastructure investment has a strong multiplier effect. An increase in infrastructure investment by 10% could result in 0.7-1% increase in long-term output.8 Compared to other alternatives, like tax cuts or welfare payments, infrastructure investment has a bigger bang for the buck.9
COVID-19 has nonetheless raised concerns about pandemic risks in an urban setting, as many major cities were early COVID-19 hot spots. Early in the pandemic, over 95% of total cases were in urban areas, affecting over 2 550 cities. Tight quarters are believed to facilitate viral transmissions while challenging the enforcement of lockdown and social distancing measures. However, this should not be the excuse to curb urbanisation. Not all large cities were equally affected, with many Asian cities well-known for their high population density faring better than Western ones in containing the spread of the virus (see Table 1). At the same time, there are now more indications of rural vulnerability, both in terms of a fast catch-up in later waves and lack of sufficient medical readiness.10
Table 1: Urban cities and pandemics
Source: Peak Re
Urbanisation should be pursued in a way that minimises pandemic risks. Furthermore, changes to how people work and live will outlast the pandemic, and these need to be taken into consideration in city planning.
Growth of cities of all sizes:
Nothing symbolises urbanisation more than megacities – those cities with more than 10 million population. According to the UN,11 currently there are 33 megacities, with the number expected to increase to 43 in 2030. Seven of the ten largest cities in 2018 are in Asia: the largest city is Tokyo but Delhi is projected to overtake Tokyo by 2030. While the number of megacities will continue to increase, a new wave of urbanisation in Asia is expected to focus more on the development of urban agglomeration particularly in small- to medium-sized cities, where different forms of clustering of cities will complement each other.12
Climate-proofing future cities:
Measures to facilitate climate adaptation, reduce carbon footprint and increase resilience against climate-shocks are already embedded in pre-pandemic urbanisation planning. The outbreak of COVID-19 has demonstrated the possibility of a significant reduction in urban carbon footprints, for example, through reduced mobility and alternative working arrangements. Accordingly, there is a renewed drive to consider long-lasting changes to how cities operate, in order to make the reduction in total emission permanent.13
Cities do not necessarily lend themselves to equal opportunity. Widening inequality is already contributing to a decline in “global human development”, according to the UNDP.14 As a result, urbanisation has focused increasingly on inclusive growth aiming at narrowing inequality for example through inclusive finance/insurance, incorporation of D&I principles, and addressing the issue of “right to the city”.15 The COVID-19 pandemic hit the poor the hardest, and will likely have widened further inequality in cities. It is estimated that some 1 billion people living in dense and over-crowded cities are the most hard-hit by the pandemic.16
In both emerging and advanced markets, COVID-19 has overwhelmed health infrastructure. There is now a strong realisation that health infrastructure particularly in emerging markets need major improvements.17 Providing sufficient healthcare is also important in poverty alleviation and reduction of inequalities. This trend could easily be extended to include a level of self-sufficiency on drugs and medicine, as well as healthcare equipment. Countering this is more consumers are seemingly willing to accept telemedicine (in diagnosis, monitoring and sharing information), thus making proximity to medical facilities less imperative.
Future of work (and education):
The future of work (and education) is changing, as some forms of mobile working (and learning) will be permanent. Even before the pandemic, the rise of remote work, aided by artificial intelligence, automation and robotics, was challenging the future of work.18 COVID-19 has further exacerbated this trend by forcing millions of office workers to work remotely. It is expected that many will not return to their offices even after the pandemic has subsided. This will also be influenced by the rise of the gig economy, where formal employment is increasingly replaced with contract working.
Diversification and resilience:
The pandemic hit certain economic sectors hardest including the retail, tourism and hospitality industries. More findings are showing the lack of diverse economic structure being a source of vulnerability of cities.19 This points to the need of cities being more diverse in their economic structures, such that they can better deal with external shocks in future. Another example is transportation restrictions disrupting food supply in cities. Fresh ideas like urban farming have thus been proposed to improve local supply chain and city self-sufficiency.
Insurance should consider itself a major stakeholder in protecting the future of cities. Much of the expected growth in insurance demand over the coming decade will come from new urban centres, particularly those in Emerging Asia. At the same time, increasing concentration of assets and risks in urban areas will remain one of the key challenges for insurers in the years to come. As a result, it is important that insurers should equip themselves with knowledge of urban planning and development, as well as city risk management, in order to support the next wave of urbanisation in Asia. Table 2 below offers a snapshot of urbanisation trends post-COVID-19 and implications to insurance.
Table 2: Urbanisation and implications for insurance
Source: Peak Re
The list in Table 2 is not exhaustive. However, the main takeaway
remains that the intertwining of economic growth and urbanisation will continue
to offer huge business opportunities for insurers in emerging Asia. Insurers
will need to equip themselves with the right knowledge in order to partake in
this opportunity, for example in terms of inclusive and green insurance,
renewal energy, health infrastructure and intangibles.
 World Urbanization Prospects 2018, ibid.
 Ha Minh Nguyen, Le Dang Nguyen, “The relationship between urbanization and economic growth: An empirical study on ASEAN countries”, 12 February 2019, International Journal of Social Economics (link).
 Meeting Asia’s Infrastructure Needs, Asian Development Bank, February 2017 (link). It was estimated that every 1% growth in urban population correlated with per capita GDP increase of 13% for India, 10% for China, and 7% for Thailand, but only 4% in the case of Indonesia (link).
 A. Spilimbergo, S. Symansky, M. Schindler, Fiscal Multipliers, IMF Staff Position Notes, 2009
 “Covid-19: Fresh cases down but share of rural, semi-urban areas up sharply”, The Times of India, 1 December 2020 (link). See also S.J. Goetz, Z. Tian, C. Schmidt and D. Meadowcroft, “Rural COVID-19 Cases Lag Urban Areas but Are Growing Much More Rapidly”, NERCRD COVID-19 Issues Brief No. 2020-3, April 3, 2020, NERCRD and Penn State University (link).
 There are suggestions that urbanisation will accelerate in 2021 but mainly through more informal settlements in less developed areas, driven in part by fear of disease transmission in densely populated areas and increasing opportunities for remote work. See A. Rastandeh, M. Jarchow, “Urbanization and biodiversity loss in the post-COVID-19 era: complex challenges and possible solutions”, Journal of Cities & Health, May 2020 (link).
 The percentage of countries with policies to lower the internal migration has risen from 48% in 1976 to 80% in 2013, according to the UN’s World Population Cities 2013.
 According to the Wold Bank, COVID-19 could “push an additional 88 million to 150 million people into extreme poverty this year”, with the World Bank Group President, David Malpass saying that “countries will need to prepare for a different economy post-COVID”. (link)