Reinsurers may label Thailand 'high-risk'

The flood crisis could lead to Thailand being classified by foreign reinsurers as a high-catastrophe-risk country, directly affecting not only clients but also Thai insurers, who would face high premiums and stringent conditions. 

Although the total claims have not been assessed yet, initial damages appraised by many concerned organisations are well beyond the sum insured. In addition, reinsurers will avoid such disaster risks if the country does not come up with concrete flood-prevention plans.

Normally, a country will be classified as a high catastrophe risk if the minimum damage to the insurance industry is US$5 billion (Bt150 billion). 

Once classified as high-risk, Thai insurance companies will face higher premiums and stringent conditions. The increased cost will then be passed on to their clients. 

Insurance companies shared the view yesterday that it would take three to six months to settle claims after surveyors and recovery operators are able to get into the premises of affected customers. After that, the industry will have to evaluate the value of damages before it is able to hold talks with foreign reinsurance companies. 

According to figures from the Office of the Insurance Commission (OIC), the flood situation has affected 651 districts in 63 provinces, with 3.01 million households and 9 million people suffering. 

The total sum insured of the industrial and household sectors amounted to Bt745.39 billion, while damages have been assessed at Bt149 billion to Bt216 billion, accounting for 20-30 per cent of the sum insured. Of the total, insurance of the industrial sector accounted for Bt688.92 billion while initial damage assessment has reached Bt138 billion to Bt200 billion. The household sector accounted for Bt56.47 billion of the sum insured, with damage at Bt11 billion to Bt16 billion. 

Pravej Ongartsittigul, secretary-general of the OIC, said yesterday that the office had discussed with Thai insurers extending the period of customers’ policy renewal by three months, to the end of March. Normally, Thai general insurance business completes policy renewals by December 31. However, the flood has made insurers and reinsurers reluctant to take on further risk at the same premiums. At the same time, policyholders want risk coverage during the grace period.

He added that the OIC had allowed both Thai insurers and clients to negotiate for sub-limit insurance coverage to provide risk coverage at reasonable prices and acceptable to both sides. 

Sub-limit insurance, which covers special classes of property, may be subject to a specified claim limit per occurrence and assets. As a result, risk coverage can be purchased based on a customer’s risk at a premium negotiated with the insurers.

“Both policyholders and insurers will have more choices for policy renewal, as it is difficult for manufacturers and households to have flood coverage when they purchase industrial all-risk insurance,” Pravej said.

The OIC is considering a way to map out conditions that will ensure that both consumers and insurers enjoy fair practices when purchasing risk coverage. For instance, policyholders should help protect their assets to reduce loss amid increasing and more serious risk, particularly natural disasters.

Pravej said the OIC would hold talks with Lloyd’s of London, the world’s largest insurer providing specialist services, and leading Japanese reinsurers to persuade them to continue reinsuring Thai insurers. 

Moreover, the government is considering a different model by setting up a “catastrophe insurance fund”, focusing on taking risks from severe natural disasters. This strategy is being drawn up to ensure ability of Thai insurers to pay claims. The office is studying insurance-fund models in many countries such as Japan, the United States, France and Taiwan.

“We cannot do anything much now. The situation is still in crisis, hence the final assessment has not been done. We have to wait for it and talk to reinsurers about the new conditions,” he said. 

Somporn Suebthawilkul, chairman of car insurance at the General Insurance Association, said the huge amount of claims from this crisis would lead to Thailand being classified as a high-catastrophe-risk country and would affect all concerned businesses and customers. 

Somporn, who is also managing director of Dhipaya Insurance, said the company’s gross loss would reach Bt5 billion with an expected net loss of Bt300 million. However, those expected losses have been reinsured to reduce risk. Of the total gross loss, claims for first-class car insurance accounts for about Bt70 million and the rest are industrial all-risk insurance.