Foreign reinsurers likely to set new conditions

“Like in other industries, reinsurers have to continue doing business but they will try to balance their losses with income. They may consider with their customers [insurance companies] new conditions to balance benefits,” Pichit Mekkittikul, managing director of Independent Consultant Co, a leading local insurance brokerage, said last week.

The flood crisis will prompt the insurance business, including insurers, reinsurers and insurance brokers, to talk about the new conditions to cope with more serious risks such as natural disasters, floods, storms and earthquakes.

Due to the worsening flood, reinsurers have had to manage their risk by sharing costs with insurers, which forces insurers to increase their premiums. For instance, insurers offering their customers flood coverage as an extension of their fire-insurance policy would need to purchase a separate contract for flood insurance.

Insurers may need to find more reinsurers that welcome all risks, otherwise they will need to look for a new one to take on serious risks like this flood.

“Consumers will face higher premiums while insurance companies also have to look for partners that can service them under one roof otherwise they have to find new partners to facilitate their service,” Pichit said.

Reinsurers in the future may accept fire risk but decline flood risk.

Due to the flood crisis, both insurers and reinsurers have not yet assessed the losses of their policyholders, as they cannot go into the damaged sites. Reinsurers also have to bring in surveyors and adjusters to help assess the damage.

However, most flood-affected companies are Japanese and they are mostly covered by Japanese insurers in Thailand, so they may file initial claims by the end of this year.
Local insurers may have to talk with their reinsurers to extend existing contracts for a few months until the loss assessments have been finalised. Normally, reinsurance contracts expire on December 31 every year.

“After loss assessments have been finalised, reinsurers will consider whether to renew contracts or stop insuring flood risk or raise new conditions with new premiums to ensure risks are covered,” Pichit said.

The good performance record of local insurers will convince reinsurers to renew contracts, but at higher premiums.

The most important factors for reinsurers are how often natural disasters will happen and whether the government has provided protection measures. For instance, Japan often faces tsunamis but Japanese insurers still carry such a risk through a government-established tsunami fund, he added.