Backing Asia’s chip champions in a riskier world

This article was first published in The Business Times on March 20, 2025.

Semiconductors are now becoming the hidden engine behind the global economy, powering everything from electric cars to artificial intelligence (AI). Just a few Asian foundries produce most of the world’s microchips, making the region a hub when it comes to innovation and industry. But if we overlay the current risk environment, it is clear that constant reassessment of the sector's vulnerability to external shocks is needed—and for re/insurers to redouble efforts to enhance its resilience.

Driving innovation, and growth

Asian economies are rightly proud of their prominent positions in the technology supply chain.

• Taiwan, home to TSMC—the world’s largest chipmaker¹— is at the forefront of cutting-edge process technologies crucial for AI.² With AI demand surging, its semiconductor industry is poised for explosive growth, with TSMC predicting AI-related revenue to increase 45% annually over the next five years.³
• Mainland China, the world’s largest semiconductor market,⁴ is also rapidly advancing its industry with huge government investments⁵ to serve growing domestic needs and reduce reliance on imported components.
• South Korea meanwhile is the global market leader in memory chips, and the second-largest semiconductor producer in the world overall.⁶
• Japan, a pioneer in the sector, is steadily rebuilding its semiconductor manufacturing capacity, with the government devoting at least US$65 billion to this purpose.⁷
• Malaysia is the world’s sixth-largest exporter of semiconductors, accounting for 13 per cent of the global assembly. It aims to attract US$115 billion worth of investments by 2030.Penang, known as the Silicon Valley of the East, is a major hub for semiconductor manufacturing.⁸
• India, which is offering comprehensive incentives to attract private sector investment in semiconductor manufacturing.⁹

With demand accelerating, the race for innovation heating up and a surge in investment across Asia Pacific, the semiconductor industry will only gain momentum. 

Small chips, big risks

For all the promises, we must also acknowledge that Asia’s chipmakers face a growing array of challenges that could threaten their future capacity and viability. These include shifting trade policies, cybersecurity risks and natural disasters, which our research shows are becoming more severe.¹⁰ The capital-intensive nature and high-value output of the sector mean any losses resulting from these risks will be keenly felt.

In Taiwan and Japan, where earthquakes and typhoons are a common occurrence, structural damage to foundries is a critical risk, particularly as the ultra-precise processes involved in making advanced microchips require a sterile and stable environment. A reminder of this was the powerful 7.4-magnitude earthquake in April 2024, as well as the one witnessed earlier this year which forced TSMC to temporarily halt some facilities¹¹ . As factory footprints expand and more specialised equipment come into use, the costs of any physical damage as well as business interruption impact from earthquakes or climate-related disasters may rise.

Beyond natural catastrophes, COVID-19 highlighted the industry’s vulnerability to supply chain disruption. Trade restrictions such as export controls and tariffs¹², may impact the supply of critical components and machinery, potentially leading to longer downtimes and higher business interruption claims.

Any immediate losses the industry suffers will be magnified by their impact on multiple downstream supply chains globally. In 2021, a fire at Renesas in Japan and a snowstorm in Texas exacerbated the global chip shortage, leading to significant contingent business interruption (CBI) losses in Chinese car manufacturing plants¹³ . In the face of such events, ensuring Asia’s chip industry can withstand such shocks and remain operational is paramount, not just for chipmakers and their clients, but industries and economies across the world.

Strategies for a safer future

Given the long history of chip manufacturing in Asia, insurance providers have customised solutions to meet the industry’s changing realities. At the core of these are property and business interruption insurance, which provide a lifeline to companies that need capital to resume operations as quickly as possible.

Chipmakers can also leverage contingent business interruption (CBI) coverage for supply chain disruptions, which helps manufacturers and buyers stay afloat when key suppliers fail to deliver.

As a result of a changing risk landscape, we can expect demand for capacity and expertise from chipmakers to rise. As an industry, we could focus on:

• Improving risk assessment and management: Insurers can leverage lessons from past events and proactively advise the semiconductor industry on risk management best practices for fire and natural catastrophes. These should include specific measures to enhance the resilience of both hardware and software.
• Reinforcing underwriting quality: Insurance companies establish underwriting guidelines according to their own risk appetite and business strategy. However, consistency and discipline are needed, and scenarios should be regularly tested to ensure that the accumulated premium pool will be sufficient to cover any large losses or events. Insurers should also be cautious about potential CBI loss accumulation from disruption in the upstream segment of the semiconductor industry, which could have knock-on effects with significant financial impacts.
• Utilising reinsurance for capital optimisation: Reinsurance offers insurance companies a cost-effective way to manage risk and maintain solvency, especially in complex sectors like the semiconductor industry. Both treaty and facultative reinsurance can be tailored to meet the specific needs around semiconductor production, allowing insurers to manage their portfolios more effectively.
• Armed with these insights, reinsurance can continue to act as a much-needed shock-absorber  against tail risk and support the semiconductor industry’s continued growth.