Closing the protection gap for nat cats in Hong Kong: EAIC panel

Natural catastrophes are becoming more severe and more frequent, widening the protection gap across many emerging Asian economies, an economist told delegates at the East Asian Insurance Congress (EAIC) in Hong Kong this week.

John Zhu, chief Asia-Pacific economist at Swiss Re, said nat cat losses were rising at a long-term trend of 5 to 7 percent, even though 2023 brought a slightly below trend loss.

He said there were multiple drivers of rising cat losses, including rapid economic development, growing property values, higher insurance penetration as well as a concentration of people in exposed areas.

Urbanisation and population growth were also factors, Zhu said, which heightens flood risk. Climate change, in terms of natural variability and anthropogenic change, was also having an impact.

Zhu examined how climate and exposure variables interact in Hong Kong, such as temperature, severity and frequency of typhoons, rainfall and flood risk, and the age of properties.

“A hotter climate means higher demand for utilities and higher maintenance costs, especially for older buildings, increasing the carrying costs of owning a house, or the investment cost of buy-to-let,” he noted. “In a coastal city such as Hong Kong, some seaside buildings are particularly vulnerable.”

“The biggest source of losses recently is flood.”

Migrating populations were exacerbating threats from climate change, Zhu said. “We know long-term structural factors such as urbanisation are a tried and tested way for people to improve their livelihood,” he said. “They move from the country to cities but often the infrastructure in urban regions lags behind population growth, increasing exposure to nat cat risk.”

Zhu said the “climate change challenge is only going to increase”, with more losses from perils such as floods after a typhoon. “The biggest source of losses recently is flood, and the headline statistic is quite dramatic, as floods account for 10 percent of all nat cat losses.”

Most, Zhu said, are due to a lack of sufficient drainage. “These things tend to come after people move into cities.”

For more news from the East Asian Insurance Congress conference (EAIC) click here.

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