Philippines’ risky route on ‘Typhoon Superhighway’

We all recall the destruction wrought on the Philippines by Typhoon Haiyan in 2013.

It was the 30th typhoon in a more-active-than-usual season that had already spawned several significant windstorms, and it became one of the most powerful storms ever recorded.

At least 6300 Filipinos died in the devastation and the storm surges it created, and damage to property and infrastructure was estimated at almost $3bn.

However, in the Philippines, disaster management is not merely limited to typhoons and flooding.

In addition to being situated at the centre of what principal insurance officer of the International Finance Corporation (IFC) in the Philippines Jan Mumenthaler (pictured) calls the ‘Typhoon Superhighway’, the Philippines is further prone to earthquakes and volcanic activity since it sits above the Ring of Fire, which borders most of the Pacific Rim.

The area is responsible for most of the world’s powerful earthquakes and volcanic eruptions, and the Philippines is particularly at risk.

Indeed, an earthquake measuring more than 5 on the Richter Scale was felt across the Manila Metro area shortly after StrategicRISK held its recent roundtable in the city, which will form the basis of SR’s upcoming 2014 Philippines Risk Report.

By the standards of the Philippines, this was only a minor tremor, but it served as a timely reminder of a near and ever-present danger.

A much bigger earthquake along the West Valley Fault – considered a one-in-350-year event – is believed by seismologists to be imminent after completing its historic cycle.

But although predicting when and where such an earthquake might strike is not a precise science, clearly the likelihood of such an event happening increases with each day.

According to Mumenthaler, funding for resilience is crucial in such an environment.

“One dollar invested into resilience will yield $7 paid back in time,” he says.

“This needs to be understood and catered for by firms in terms of dealing with major catastrophe risks.

“It must be taken into account that these are investments that will yield over a longer period of time.”

Insurers also have a role to play, Mumenthaler says.

“They must help businesses understand what critical risk improvements to make – ideally calculating the reduction of losses through risk improvement investments – for example, investing $250,000 in a back-up generator would result in X days fewer lost to business interruption,” he says.

“This will help companies understand the effect and benefits.

“Insurers should also reward investment in resilience as they will ultimately yield benefits from an insurance coverage perspective.”

Aon’s chief executive in the Philippines Chris Dale says that when you compare Manila with other cities, the risks are very high.

“Manila is among the four global cities most vulnerable to natural disaster,” he says.

“A strong typhoon hit Manila in July. It brought wind but not rain, yet still it shut down the city for 24 hours.

“When you talk about a city shutting down for 24 hours, what kind of effect will we see from such events in the future, particularly in the event of a major earthquake or super typhoon?

“Haiyan, at one stage, was projected to hit Manila but changed course slightly and missed, yet its effects effectively stripped 1% of the country’s GDP.”

For more discussion of the key risks that are affecting businesses operating in the Philippines, keep an eye out for StrategicRISK’s soon-to-be-released 2014 Philippines Risk Report.

Risk reports for countries such as China, Japan, South Korea and Taiwan will also be available later this year, adding to the already comprehensive selection available here.

The reports are sponsored by Zurich and supported by the Pan-Asia Risk and Insurance Management Association (PARIMA).