BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

Insurance capacity shrinks after Thai floods

Insurance capacity shrinks after Thai floods

BANGKOK—Businesses disrupted by long-term flooding in Thailand ramped up efforts to restart production as the year began amid sharply contracted insurance capacity, higher pricing and tighter terms for the coverage that is available.

Insured damage from the floods that began last summer and generally receded by year-end is estimated at $10 billion, according to Aon Benfield, much of it among international manufacturers located outside of Bangkok in seven large industrial estates, or industrial parks, that each house more than 100 factories.

Swiss Re Ltd. estimated total insured losses from the Thai flooding at $8 billion to $11 billion. However, it will be some time before total insured damage is confirmed, as claims adjustment is taking time because of the severity of the damage and a shortage of adjusters.

Five of the seven estates that flooded in Ayutthaya province took the brunt of the damage. They housed hundreds of global manufacturers of cars, electronics and disk drives, and parts makers and suppliers to larger manufacturers worldwide.

While some factories have restarted their operations, others still are working on recovery efforts. A small percentage decided to move their production out of Thailand entirely (see related story).

Jiraphant Asvatanakul, Bangkok-based president of the Thai General Insurance Assn., said multinational and foreign-Thai joint venture operations suffered the most insured damage. Those accounts were written largely by foreign insurers, particularly Japanese underwriters, he said.

Meanwhile, insurers, reinsurers and third-party administrators were dealing with a shortage of surveyors and claims adjusters, logistical difficulties and the sheer scope of the disaster, said Richard Jones, a principal at Guy Carpenter & Co. L.L.C.'s Singapore office.

The adjuster shortage led to a flap, with Thai insurers accusing outside adjusters and surveyors working for reinsurers of charging more than is customary.

“The problem was the limited ability of survey companies in appraising these losses,” said Mr. Jiraphant. “Since then, the Office of the Insurance Commission (Thailand's insurance regulator) has relaxed its regulations and allowed surveyors from Malaysia, Singapore and Japan to come and work in Thailand.”

“But it's still quite a slow process,” Mr. Jones added. “Loss adjusting is taking time from a resources viewpoint, and there's a lot of uncertainty still.”

Business interruption losses have been equally hard to assess, said Theera Bunnag, executive vp of Bangkok-based ThaiSri Insurance Co. Ltd. Policyholders and insurers are having a difficult time accurately estimating income lost due to the many factors involved. Aside from lost revenue due to production shutdowns, factors such as costs associated with “supply chain disruptions; the lag time when either fixing or procuring new machinery; as well as time spent rejigging, retooling and rehiring staff,” also are factors, he said.

Other issues include accounting for when the damage occurred, which varied from location to location. He also said it's likely that many companies have exceeded their limits for business interruption coverage, and that companies on the other side of the world whose businesses were disrupted because of the Thai flooding also are claiming business interruption losses, he said.

Mr. Jones said reinsurers have been left in the difficult position of having to price out 2012 reinsurance treaties while they still don't know their full losses from the Thai floods. Reinsurers' renewal treaties include new terms and conditions, higher pricing and several new options that are not easy for clients to digest, he said.

For example, Swiss Re has estimated its exposure from the flooding at about $600 million. Munich Reinsurance Co. put its losses at about $655 million before taxes.

“Clients are having to grapple with different reinsurance structures that they have to take on board, and we are seeing sublimits coming in for flood” coverage, Mr. Jones said.

Brokers also say that reinsurers are pulling back on underwriting in Thailand. French state-backed insurer Caisse Centrale de Reassurance S.A. announced that it has quit underwriting in Thailand, as well as New Zealand and Australia, as a result of several natural disasters.

Surachai Sirivallop, chief executive director and CEO of Thai Reinsurance P.L.C. predicts that multinational reinsurers will more than double pricing for flood and industrial all-risk policies while capping flood coverage.

He added that most primary insurers have started imposing flood coverage sublimits, with some covering a mere 20% of the amount insured, and rate hikes of up to 30%.

“Capacity may shrink a lot,” Mr. Surachai said. “Once, people did not consider Thailand a (catastrophe) market and now everyone has to manage their cat. The market will be lucky to get 10% of its previous capacity.”

He said that Thai Reinsurance still has been unable to assess its full losses from the floods, but he added that the Thai property market accounts for less than 5% of its book of business. He said the company has avoided the property market due to what he says is rampant underpricing by local Thai insurers.

“The local underwriters don't care much,” said Mr. Surachai. “They chuck it all to the international reinsurers. If they don't keep (the risk) for themselves, they don't care about the impact.”

He added that the flooding “has been a wake-up call for everybody, including reinsurers,” to tighten underwriting standards and price responsibly.

Local insurers are feeling the effects as well.

Due to concerns about the ability of the industry to absorb another hit in the future, Thailand's Office of the Insurance Commission is considering creating a 50 billion baht ($1.60 billion) flood insurance risk pool.

Mr. Surachai said such a pool would go a long way toward calming insurers.

“Most markets that have cat exposure have national pools with support of the government,” he said.

Read Next

  • Some companies rebuilding, others leaving Thailand

    BANGKOK—While some of the worst-damaged factories still were working to restart their flood-damaged operations, others, such as SANYO Semiconductor Co. Ltd., decided not to rebuild and opted to move elsewhere in Thailand or outside the country.