Hong Kong set for era of change

Protests have once again erupted in Hong Kong after China announced it would impose a national security law on the city, leading to fears the former British colony would lose its unique freedoms.

Political tension in Hong Kong continues to rise, with anti-China protesters clashing with police throughout the city. China has vowed to push through its security laws, which would make secession, subversion, terrorism, and interference by foreign forces a criminal act.

Amid mounting political unrest risk and insurance experts are weighing up the impact of the legislation. The Hong Kong Federation of Insurers believes “in essence, the proposal will not bring changes to the fundamentals of our insurance sector”.

The HKFI says existing laws will protect Hong Kong’s insurance market and the free flow of capital. The organisation said the territory’s insurance market would remain robust and governed by strong regulation.

Meanwhile, Andrew Chow, chief risk officer of Hong Kong-based financial services group Hang Seng Bank, believes the business sector broadly supports the new laws. 

“Businesses in Hong Kong generally believe that establishing and improving the legal system and enforcement mechanisms to safeguard national security at the state level was a move that in the long run, brings lasting prosperity and stability to the business environment in Hong Kong by stabilising the social order,” he says.

“According to a survey recently conducted by Hong Kong General Chamber of Commerce, the majority of the respondents believe that the law will either have a positive impact or no impact at all on their businesses over the long-term. Leading financial institutions and conglomerates in Hong Kong have voiced support for the legislation,” Chow adds.

According to Chow, some businesses in Hong Kong have expressed concerns about the global reaction to the security laws and possible foreign sanctions. Unwittingly violating the law was less of a concern for most companies, he said.

“It is quite self-evident that the risks rest with the responses to the law, rather the context of the law”. He adds: “Risk managers should pay close attention to the draft of the proposed law to stay on top of the rules, to manage the risks.”

While corporates have played down the impact of the security laws, some businesses fear violent protests will cause unrest in the short term.

Richard Floyd, global head of terrorism and political violence at Willis Towers Watson, says organisations should carefully review their insurance coverage at times of civil unrest. 

“In our opinion, the most important aspect at this point in time, specific to the application of risk transfer, is the necessity to review, challenge and implement insurance cover that can adequately address the spectrum of perils which continue to evolve in many parts of the world,” Floyd says.

Floyd adds: “Companies with assets and operations around the world, which may be impacted by isolated or widespread unrest, should be looking to remove the ambiguity from their risk transfer framework and not merely assume their existing policies will respond in the event of a loss.

“This approach may include the procurement of full Political Violence programmes, enhancing contract language within existing policies, or structuring tailored solutions which meet with their own unique exposures,” he adds.

Looking to the future, experienced risk professionals believe there are positives to take from developments in Hong Kong.

Steve Tunstall, an independent risk analyst and former head of corporate risk management at Hong Kong airline Cathay Pacific, says the security laws could make the outlook more stable for the region.

“If anything I feel these laws are likely to bring a bit more of a sense of stability back to Hong Kong,” he says. “Unless your business has been in the direct firing line of the protesters, I don’t believe the impact has reached unmanageable proportions for most. While not’ business as usual’, more legal stability around these issues is likely overall a good thing in the long term.”

Tunstall sees “no need to change mitigation plans” for companies and international firms “who are committed to Hong Kong”.

He believes risk managers need to clearly communicate the true level of risk and allay potential concerns: “For companies where their Western headquartered management boards are getting nervous, it’s a time for clear upward communication of the genuine impact on the ground,” he adds.