Disasters force Mitsui to change risk model

After the inundation here, the company was flooded with claims of Bt1.7 trillion. Half of the claims have been paid and the remainder is expected to be settled by next March.

The model change will focus on probable maximum loss (PML), a property-loss control term referring to the maximum loss expected at a given location. It will include flood risk. At present, it covers only storms and earthquakes.

Under the new model, the company has to raise insurance premiums by 30 per cent for flood-hit customers and limit their coverage. The company has also increased its capital to ensure payment on possible claims from the euro-zone crisis and future natural disasters.

Naoyuki Sakaki, deputy general manager of Mitsui Sumitomo Insurance (Thailand), said yesterday that Mitsui was a global insurer of natural disasters, specialising in protection against losses from storms and earthquakes.

The PML model has been used by the company in the past, but was not used to cover floods because there hadn’t been such a major flood like the one last year, he said.

Thailand’s big flood of 2011 is estimated to cost 4.3 trillion yen (Bt1.7 trillion), which is the company’s biggest loss ever. It has resulted in the company moving its risk evaluation completely to the PML model.

The head office in Japan is now changing this model and it will soon be applied to its offices around the world. The change will be added to policies that cover floods. The model is expected to be completed by next year.

"Mitsui is using the flood in Thailand as the basis for changing the PML model. Previously the company had never insured against a flood that is now estimated to cost the company up to 4.3 trillion. We have to adjust the model around the world to reflect the risk of major floods as best we can," Sakaki said.

The Thai flood has been a big lesson and experience for Mitsui. The company has offered insurance in Thailand since 1964 and during its 48 years in operation, it has never paid out a claim as huge as this. However, it will not shake Mitsui’s financial status because it had purchased reinsurance.

The head office in Japan has increased its capital as a way to offset any potential problems in Europe due to that region’s financial crisis. However, part of the capital increase will be used to cover damages from natural disasters in other countries, not just in Thailand.