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Losses to property, income still rising in Thai flooding

Losses to property, income still rising in Thai flooding

BANGKOK—Hundreds of factories remained shut in and around Bangkok last week in the worst flooding in decades, disrupting supply chains around the world and resulting in insured losses that are expected to hit Japanese insurers the hardest.

The flooding—runoff slowly moving south from the central plains to the north of the city after an unusually long and heavy rainy season—caused widespread damage in Thailand. Some 400 deaths were blamed on the flooding, which affected some provinces north of Bangkok for three months.

Expected insured losses range from Deutsche Bank's estimate of $2.5 billion to the Thailand Office of the Insurance Commission's estimate of $5 billion. In an analysis last week, JLT Re, the reinsurance brokerage arm of Jardine Lloyd Thompson P.L.C., said insured losses could reach $13 billion.

Large industrial estates, which house factories that make everything from hard drives to passenger cars, took the brunt of the damage. Four large estates in Ayutthaya, 80 miles north of Bangkok, include the Hi-Tech industrial estate, home to 143 factories that shut down due to the flooding. The nearby Bang Pa In industrial estate, with 90 factories, also flooded. More manufacturing areas on the east side of Bangkok were threatened.

Japanese companies account for the lion's share of direct foreign investment in Thailand, hence Japanese insurers are expected to absorb 80% of the claims, according to the insurance commission.

Even manufacturers not directly affected saw their supply chains disrupted and had to take remedial steps to keep their operations humming.

Dana Spicer (Thailand) Ltd., which makes axles and drive shafts at two factories that had been spared flooding, said its operations were disrupted after several of its suppliers' facilities were flooded.

“Ten of our suppliers who had flooding had backup plans, but two did not,” said Michael Diamante, managing director. “The ones with backup plans were able to move their operations to other machine shops,” which enabled Dana Spicer to continue supplying its customers.

The company's plant in the Lat Krabang industrial estate in eastern Bangkok is not yet out of the woods. He said employees built sandbag walls around the facility, plugging any visible holes and erecting barriers.

“Our plant is elevated, so we may not be flooded,” Mr. Diamante said. “We've done as best we can. It now depends on the amount of water that may come.”

Meanwhile, the Bangkok Metropolitan Administration, in defiance of the central government, was diverting water to suburban areas west and east of downtown via a canal network to spare the city center—a move roundly criticized by suburban areas calling for an equal sharing of the flooding pain.

The move put at risk two industrial estates to the east of Bangkok and the nation's main airport, Suvarnabhumi Airport.

Meanwhile, like many other retailers, Tesco Lotus, a local joint venture with Britain's big box store Tesco P.L.C., ordered supplies from other countries to keep shelves stocked. Several chains—Tesco, 7-Eleven and supermarket chain Big C—saw their distribution centers in north Bangkok flooded. In addition, the flooding forced food manufacturers to close.

Tesco Lotus, according to Thailand operations Director James Scott, stopped trucking its products to stores, was using more trains and partnered Thai Airways to fly its inventory to other parts of the Thailand. It also was working with a sister company and other suppliers to obtain difficult-to-find items, such as drinking water and instant noodles.

“(Our) team is working round the get essential supplies to our customers,” Mr. Scott said. “The use of trains, planes, the arrival of deliveries from Malaysia, China and Vietnam, and...our temporary distribution hubs is significantly helping us to achieve this, and we are looking to increase the amount of product we distribute using this network.”

Meanwhile, insurers have had a difficult time adjusting claims, because the water has yet to recede in many of the affected factories.

“The main issue is that we can't get to the factory sites, and it's difficult to assess what is happening,” said Duncan Buchanan, CEO of Marsh PB Co. Ltd, a unit of broker Marsh Inc., in Thailand. “We have to continue monitoring the situation until the water recedes.”

Marsh sent a claims adjuster to survey the damage by helicopter and found that most factories could not be accessed because of the high water levels.

With floodwaters not expected to recede for weeks, it will take some time for insurers to assess the damage.

“It's too early to tell the quantum of the loss and it will take some time to understand the extent of the business interruption exposure and some time to assess damage to stock and damage to machinery,” said James Nash, CEO of the Asia Pacific Region for Guy Carpenter & Co. L.L.C., in Tokyo.

Noting that the Japan earthquake and tsunami did not produce as many insurance claims as had been expected, Mr. Nash said Thailand may be different.

“When we do see events of some magnitude, which this may be, we'll possibly see a restructuring of the way reinsurance treaties are placed,” Mr. Nash said. “The structures that were in place last year may not be in place next year.”

View a slideshow of the flooding in Thailand.