Recent typhoons batter insurers to a record US$130m in payouts – and there may be more to come
Since 1980, HK has had 53, no.8 signal typhoons, according to Swiss Re, which has now launched a specialist ‘Insur8’ policy
The two typhoons that ripped through Hong Kong, Macau and other parts of southern China last week is likely to cost insurers a record HK$1 billion (US$130 million) in physical damage claims, as well as those to compensate for business interruption.
And the final bill might be added to soon, as another fierce weather front could sweep into the same area over the coming weekend.
“The damage in Hong Kong wasn’t too big, but there was major property damage in Macau, the claims on which are likely to be settled by Hong Hong-based insurers,” said Haywood Cheung, chairman of Target Insurance (Holdings), a Hong Kong-listed motor insurance company.
“The estimated total damage of HK$1 billion would be a record high for a typhoon.”
The extent of the combined carnage wrought by Tyhoons Hato and Pakhar, hasn’t been seen since 1999 when Central and Wan Chai, particularly, came in for a pounding from Typhoon York, resulting in insurance claim payouts of HK$290 million.
This time around, Hato also brought tragedy, claiming 10 lives in Macau and eight in mainland China.
Hong Kong, Tokyo, Seoul, Shanghai and Taipei are all considered to be high risk typhoon areas by the insurance industry.
On top of damage caused by powerful wind and rain to property, vehicles, and ships in some cases, loss-of-business claims are common too, as everyone from small shop owners to major companies barricade and sandbag their doors, and send their staff home, grinding the city to a halt.
Macau, hardest hit by Typhoon Hato, also saw water supplies and electricity cut off, leaving its core casino business and many hotels in the dark, as well as without punters or guests for a couple of days.
The enclave’s average daily revenue last week has initially been estimated at as much as MOP 655 million (US$79.4 million), which would be 30 per cent down on normal, according to a report by CIMB, a leading Asian bank.
The overall economic daily loss from typhoon warning signals of 8 or above in Hong Kong can cost a staggering total of around HK$4.3 billion, when you add in loss of business activity, stock market trading, and day to day transactions across many sectors, or 67.3 per cent of average daily GDP, according to a 2016 study by Swiss Re, much of which will not be insured.
As typhoons look like increasing in frequency, the insurer in July actually launched a specialist policy, to cover such events.
For over a century, both the Hong Kong and Macau observatories have used the same warning systems for tropical storms, starting at a no.1 and climbing from 3 to 5 to 8, 9 or 10, which by then would mean wind speeds of over 118 kilometres per hour.
No.8 means wind speeds of between 63 and 117km per hour, at which time schools and businesses must shut, including trading on the stock and gold exchanges.
Hong Kong Jockey Club has already suggested it could cancel its first horse racing meet of this season, in anticipation of a no.8 signal possibly being hoisted on Sunday. Last season, turnover for Sunday meetings at Sha Tin racetrack in the New Territories averaged HK$1.2 billion.
Since 1980, there have been 53 category 8 typhoon warnings or above in Hong Kong, averaging out at 1.4 per year, lasting 13 hours each.
“The recent storms reinforce just how getting suitable insurance in place can help ease the pain for companies,” said Dylan Bryant, head of North Asia, Swiss Re Corporate Solutions.
“We are unable to release individual customer information, however I can say the level of interest in [its new product] the “Insur8” policy has been significant, and we are now working with clients from several industries to see how Insur8 can support their business.
“Hong Kong businesses have been bearing the economic brunt of typhoons on their earnings for many years, without insurance. There is now a solution to help protect against the impact.”
Swiss Re’s new typhoon policy will pay out on claims in the event of a no.8 signal being raised, even if no properties damage results, to shop owners for lost sales, for instance, or organisers who have had to cancel pre-booked events, such as exhibitions or tours.
Other more traditional types of insurance do cover typhoon damage to property, cars, yachts and other items, and pay out full replacement cost in cases of write-offs.
Business interruption insurance already exists, too, to cover compensation to hotels, restaurants or other types of company forced to close during a typhoon.
Cheung’s company, he says, is expecting a considerably modest 100 motor claims as a result of last week’s double-typhoon to hit Hong Kong, but he adds that the TV coverage of car parks flooded, and cars submerged in the street has led to a rise in the number of owners upgrading their policies to comprehensive, rather that the commonly used third-party damage option,” Cheung said.
Tommy Ho, a AON Risk Solution director who specialises in yacht cover, said his firm has received claims worth around HK$2 million in the part fortnight.
“Damage to yachts from the recent typhoons appears to have been minor, so claim levels aren’t high.
Hong Kong is the home port of around 9,000 ships, including 3,000 private yachts and pleasure boats, but only half of those are covered by insurance,” Ho said.
AON Risk’s cover extends from paying out for repairs to amounts equal to the value of a yacht, if catastrophically damaged.
“We have had a very busy last few days, with our assessors busy checking on damage. The typhoon as well as thunderstorms affected a lot of policyholders,” Ho said.
He certainly thinks the current spate of typhoons is likely to result in a rise in the number of new policies being bought.
Bernard Chan, president of Asia Financial, one of Hong Kong’s largest general insurance companies, said it was still too early to know the exact amount of compensation it expects to pay out.
“Our loss adjusters are working out a lot of damage costs with customers,” said Chan.
“But for sure, the losses will be big, especially for goods damaged by flooding, as well as losses from business interruption, particularly from the casinos in Macau.”
Eric Hui, chief executive of Zurich Insurance (Hong Kong), said typhoons Hato and Pakhar had already led to a more than 100 per cent increase in claims on its travel insurance policies.
“Undoubtedly, the Hong Kong public has increased its awareness of insurance cover after the multiple typhoons,” Hui said.
“Zurich Insurance (Hong Kong) received a 50 per cent increase in phone enquiries at its customer care centre. Our corporate website’s ‘claim tips for typhoons/rainstorms’ page also experienced a significant surge in traffic of 70 times, versus a normal weather day.”