Many homeowners find themselves without flood insurance
The persistent floods that are slowly inundating much of Bangkok have made many homeowners suddenly discover their standard insurance policies don't cover flood damage.
Middle- and high-income homeowners in Bangkok’s northern suburbs have suddenly realised that if the floodwaters that are now more than one metre in many homes persist for several months, their Bt5 million-Bt8 million homes will require tremendous refurbishing costs.
Several executives told The Nation that they estimated it would cost about Bt2-3 million to refurbish their flood-soaked homes especially if putrid and smelly floodwaters persist.
At the floods’ onset, Jirapa Suphakiatkamchorn, an executive at Human Capital Alliance, said she carefully reviewed her homeowner’s policy and discovered her home was not covered.
“The policy covered water damage from a pipe-burst but would not cover any flood damage,” she said.
Lower-income homeowners who live and work in northern and western Bangkok’s inundated areas are hit with a double whammy. Not only have they had to flee their flood-ravaged homes, but also many have also lost their jobs in nearby industrial estates.
Most publications estimate that more than 600,000 people have lost their jobs in the seven flooded industrial estates north of Bangkok. Few of these homeowners had flood insurance for their homes or for loss of income.
Natdanai Indrasukhsri. CEO of Siam City Insurance Co, said most homeowners only purchase standard fire-insurance policies that are required when they obtain mortgage loans from financial institutions.
“Few people want to pay additional costs for flood insurance,” he said.
The protracted floods have also highlighted the strengths and weaknesses of the country’s master flood plan. Many foreign reinsurers that normally take on part of the risk now are questioning whether Thailand can avert similar disasters in subsequent years.
Natdanai said the insurance industry and the government should implement some type of compulsory flood insurance with risks that can be spread across Thailand.
“We have to develop a flood insurance product that can be affordable for everyone,” he said.
Policies that limit the insurance companies to a maximum liability or flood insurance that pays only after a deductible has been surpassed are possible solutions that would initially keep premiums at affordable levels, he said.
With daily reports that many foreign reinsurers are not reinsuring Thai flood risks, Thai insurance companies could consider issuing catastrophe bonds that transfer insurance flood risks to investors.
These “cat” bonds were used extensively in the mid-1990s after the Hurricane Andrew disaster.
“Cat bonds are often used by insurers as an alternative to traditional catastrophe reinsurance,” he said.
If the floods persist much longer than the estimated two months, financial institutions may indeed force borrowers to acquire flood insurance to protect their collateral as more and more homes require extensive structural repairs.
Unlike fire insurance however, most industry experts expect that policies’ insured amounts for flood damage will be somewhat less than 100 per cent of the home’s value.
To mitigate the plight of its middle- and lower-income borrowers, the Government Housing Bank has initiated an immediate five-point scheme to help homeowner flood victims.
Woravit Chailimpamontri, president of GH Bank, told The Nation that his bank would immediately waive monthly payments on mortgage loans for four months and reduce interest payment to zero per cent for flood-stricken homeowners.Victims who were deprived of their ability to earn income would have loan interest rates reduced to 1 per cent for one year, while those who were disabled or deceased would have loan interest payments reduced to 0.01 per cent per year.
Borrowers whose homes became uninhabitable because of the flooding would have their loans reduced to land values only and any new or existing borrowers could immediately apply for five-year, 2-per-cent home-repair loans.
Despite all this help, the 2011 floods have indeed been a wake-up call for all homeowners, many of whom believed that floods would never hit their homes. Everyone, especially in Bangkok, has finally learned why flood plains are not the best places to build industrial estates or homes.
