Insurance Claims From Thailand's Flood Crisis To Exceed Bt600 Billion

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INSURANCE

Insurance claims to exceed Bt600 billion

Achara Pongvutitham

The Nation

Damage claims from Thailand's flood crisis will exceed Bt600 billion, including actual damages and losses due to suspended business, greater than the impact of the tsunami in Japan, according to an initial assessment by the Office of the Insurance Commission (IOC).

The greatest damage is in seven industrial estates: Saha Rattana Nakorn Industrial Estate, Rojana Industrial Park, Hi-Tech Industrial Estate, Factory Land, Bang Pa-in Industrial Estate, Nava Nakorn Industrial Estate, and Bangkadi Industrial Park. Combined damage was assessed by the IOC recently at more than Bt600 billion, on a total insured amount of Bt456.79 billion. Insurance companies will have to pay Bt200 billion for claims, accounting for about 30 per cent of the total loss.

The Federation of Thai Industries said the losses from those seven industrial estates would be Bt300 billion to Bt400 billion, covering 891 factories and 460,000 workers.

About 90 per cent of the total flood losses are reinsured, with the remaining sum also reinsured for another time. As a result, Thai insurers will not be hit too badly. Anon Vangvasu, senior vice president of the non-motor claims department of Bangkok Insurance, said BKI would take on only 5 per cent of the total losses. Affected companies are mainly Japanese manufacturers, and they had purchased risk coverage from Japanese insurers in Bangkok.

Japanese insurance companies operating in Thailand include Mitsui Sumitomo Insurance and Tokio Marine Srimuang Insurance.

Anon said claims would cost Thai insurance companies Bt3 billion to Bt4 billion.

He said the losses of companies in the seven flood-affected industrial estates would be classified into three groups: buildings and construction, stockpiles, and machinery. The initial assessment by insurers indicates that buildings will account for 10-15 per cent of the losses, stockpiles 40-50 per cent and machinery about 50 per cent.

"The floods have mostly damaged machines," Anon said, noting that the worst-case prediction was that machinery would account for 70 per cent of losses.

After the flood has receded, insurance companies will send assessors to the factories to determine the damage to machinery, then technicians will be allowed entry for maintenance before repairs, for instance applying moisture protection. The final process will be handled by technicians who restore the machines.

"Insurers should closely cooperate with affected companies to minimise losses by strictly abiding by those three after-flood processes," Anon said.

However, BKI's customers are mainly supply-chain manufacturers who want to resume operations as fast as they can. According to a survey by the General Insurance Association, affected companies bought only Bt7 billion worth of business-disruption insurance, so such firms want to repair their damaged machinery very quickly.

The biggest problem facing insurance companies is low numbers of staff and assessors. The OIC is considering easing some regulations to allow technicians to enter factories and make some repairs before insurance assessment starts in order to minimise losses.

"Those technicians will help reduce damage to heavy machinery and prepare plans for maintenance and repairs in advance. Moreover, they can report to parts suppliers whether any parts have to be imported," Anon said.

Nobody knows yet how many machines have been damaged by the floods but at least 100 engineers will be needed to manage the assessment. Insurers will compensate policyholders only after their damage claims have been validated.

Late last week, Standard & Poor's Ratings Services revised its outlook on the Thai non-life insurance sector to negative, as insurance losses could reach US$6 billion (Bt183 billion) against the industry's gross premiums of about $4.7 billion.

It said in a statement that significant flood-related losses could weaken the performance of Thailand's non-life insurers in 2011 and S&P now considers them susceptible to natural-catastrophe risks.

"The financial profile of some non-life insurers in Thailand will likely deteriorate significantly in 2011. A potential decline in underwriting profits stemming from flood-related claims and investment earnings because of equity market-related losses will contribute to the deterioration," it said.

S&P also pointed out that foreign insurers, especially Japanese firms, and foreign reinsurers currently appear to have to bear the bulk of the known losses in the industrial parks. But local insurers and reinsurers will be affected as well, despite bearing a smaller share of the losses.

-- The Nation 2011-11-07

[Sydebolle]

Well, we will see if the Japanese insurance companies operating in Thailand will not sue the government/EGAT as the operators of the water dams.

Those dam operators are at sole fault closing their valves at the beginning of the rainy season just to open them in the last quarter of the monsoon so the overflow of the dams could submerge the country together with the last bit of monsoon rain. The BMA tried to do the same by fencing off Bangkok's city centre (it is understandable but not realistic).

How stupid can one be? If these insurance companies take these clowns running the country and these dams properly to the cleaners then maybe .... M A Y B E ..... the majority of the sheepish flock of Khon Thai will wake up and realize, that they were kept in uneducated snow white sleep while the rest of the world has arrived in the 21st century. How sickening is this?

[harryfrompattaya]

Well, we will see if the Japanese insurance companies operating in Thailand will not sue the government/EGAT as the operators of the water dams.

Those dam operators are at sole fault closing their valves at the beginning of the rainy season just to open them in the last quarter of the monsoon so the overflow of the dams could submerge the country together with the last bit of monsoon rain. The BMA tried to do the same by fencing off Bangkok's city centre (it is understandable but not realistic).

How stupid can one be? If these insurance companies take these clowns running the country and these dams properly to the cleaners then maybe .... M A Y B E ..... the majority of the sheepish flock of Khon Thai will wake up and realize, that they were kept in uneducated snow white sleep while the rest of the world has arrived in the 21st century. How sickening is this?

The Japanese companies do not sue they just do not pay they claim fraud and etc. They just go out of business. That way they do not even have hire lawyers.

[Thai at Heart]

Forget suing EGAT. I am sure somewhere in the construction contracts there is a description of how effective the flood protection is, and one would hope that the companies that invested inside these estates insisted on such a provision.

In which case, I would imagine they will go after the estate constructors and owners.

[DGS1244]

"Insurance claims to exceed Bt600 billion

Achara Pongvutitham

The Nation

A few comments known from long experience in the insurance market

"Damage claims from Thailand's flood crisis will exceed Bt600 billion, including actual damages and losses due to suspended business, greater than the impact of the tsunami in Japan, according to an initial assessment by the Office of the Insurance Commission (IOC).

The greatest damage is in seven industrial estates: Saha Rattana Nakorn Industrial Estate, Rojana Industrial Park, Hi-Tech Industrial Estate, Factory Land, Bang Pa-in Industrial Estate, Nava Nakorn Industrial Estate, and Bangkadi Industrial Park. Combined damage was assessed by the IOC recently at more than Bt600 billion, on a total insured amount of Bt456.79 billion. Insurance companies will have to pay Bt200 billion for claims, accounting for about 30 per cent of the total loss.

This figure is way too low, the consequential loss claims will be far higher and can easily treble each claim.

The Federation of Thai Industries said the losses from those seven industrial estates would be Bt300 billion to Bt400 billion, covering 891 factories and 460,000 workers.

About 90 per cent of the total flood losses are reinsured, with the remaining sum also reinsured for another time. As a result, Thai insurers will not be hit too badly. Anon Vangvasu, senior vice president of the non-motor claims department of Bangkok Insurance, said BKI would take on only 5 per cent of the total losses. Affected companies are mainly Japanese manufacturers, and they had purchased risk coverage from Japanese insurers in Bangkok.

Fine for Japanese insurers but most Thai Companies do not bother to re-insure on the international market and it is very doubtful if any of them have sufficient funds to meet their obligations.

Japanese insurance companies operating in Thailand include Mitsui Sumitomo Insurance and Tokio Marine Srimuang Insurance.

Anon said claims would cost Thai insurance companies Bt3 billion to Bt4 billion.

He said the losses of companies in the seven flood-affected industrial estates would be classified into three groups: buildings and construction, stockpiles, and machinery. The initial assessment by insurers indicates that buildings will account for 10-15 per cent of the losses, stockpiles 40-50 per cent and machinery about 50 per cent.

Again no mention of consequential loss which is the highest figure.

After the flood has receded, insurance companies will send assessors to the factories to determine the damage to machinery, then technicians will be allowed entry for maintenance before repairs, for instance applying moisture protection. The final process will be handled by technicians who restore the machines.

Insurance companies will apoint independent LOSS ADJUSTERS not Assessors, there is a major difference between the two. Loss Assessors are private companies who offer the insured help in preparing their claim, often inflating figures.

The biggest problem facing insurance companies is low numbers of staff and assessors. The OIC is considering easing some regulations to allow technicians to enter factories and make some repairs before insurance assessment starts in order to minimise losses.

The insurance policy conditions require the occupier to minimise the claim as soon as practical, you don't have to wait for the 'assessment'.

"Those technicians will help reduce damage to heavy machinery and prepare plans for maintenance and repairs in advance. Moreover, they can report to parts suppliers whether any parts have to be imported," Anon said.

They are not Technicians they are Chartered LOSS ADJUSTERS

Nobody knows yet how many machines have been damaged by the floods but at least 100 engineers will be needed to manage the assessment. Insurers will compensate policyholders only after their damage claims have been validated."

Try a thousand plus engineers, 100 won't go far.

[wintermute]

S&P also pointed out that foreign insurers, especially Japanese firms, and foreign reinsurers currently appear to have to bear the bulk of the known losses in the industrial parks. But local insurers and reinsurers will be affected as well, despite bearing a smaller share of the losses.

As I said before they will probably engineer some method to put most of the burden on foreign insurers. Chances are good that no sane foreign insurance company will want to insure a Thai factory anywhere near a flood plain after this is over with.

[Thai at Heart]

S&P also pointed out that foreign insurers, especially Japanese firms, and foreign reinsurers currently appear to have to bear the bulk of the known losses in the industrial parks. But local insurers and reinsurers will be affected as well, despite bearing a smaller share of the losses.

As I said before they will probably engineer some method to put most of the burden on foreign insurers. Chances are good that no sane foreign insurance company will want to insure a Thai factory anywhere near a flood plain after this is over with.

And it is obvious that no sane company will invest inside any of the existing estates, and many will leave. They may become ghost estates. Someone had better come up with a very quick plan to work out where to put some new estates or FDI is going to reduce massively.

I heard anecdotally the other day, that one of the hard disk manufacturers had already started moving most of it's equipment to its facility in Philipines during the 2 weeks prior to their facility getting flooded. The cost of moving was a lot less than having all the machinery sitting idle for the duration of the flood. They left behind about 15% of the total machinery in the factory and the machines are already up and running over there. Anyone reckon they are coming back?

[GentlemanJim]

600 billion on insurance seems quite cheap. Imagine for a moment how much it would be if all the ordinary Thai folk were insured. I guess the thing is though, probably only 1% if that have any type of insurance. I imagine outside Bangkok, non of them. Thais just tend to insure their properties against fire only, and cars are normally theft only. The true cost of this disaster is mind blowing and way way above 600 billion.

[Thai at Heart]

600 billion on insurance seems quite cheap. Imagine for a moment how much it would be if all the ordinary Thai folk were insured. I guess the thing is though, probably only 1% if that have any type of insurance. I imagine outside Bangkok, non of them. Thais just tend to insure their properties against fire only, and cars are normally theft only. The true cost of this disaster is mind blowing and way way above 600 billion.

Just imagine what it is going to do to land and property value, or the future cost of building anything to prove that a flood of a certain size can be survived. Anyone want a shop house in the areas that got hit first?

[puntmeister]

Well, we will see if the Japanese insurance companies operating in Thailand will not sue the government/EGAT as the operators of the water dams.

Those dam operators are at sole fault closing their valves at the beginning of the rainy season just to open them in the last quarter of the monsoon so the overflow of the dams could submerge the country together with the last bit of monsoon rain. The BMA tried to do the same by fencing off Bangkok's city centre (it is understandable but not realistic).

How stupid can one be? If these insurance companies take these clowns running the country and these dams properly to the cleaners then maybe .... M A Y B E ..... the majority of the sheepish flock of Khon Thai will wake up and realize, that they were kept in uneducated snow white sleep while the rest of the world has arrived in the 21st century. How sickening is this?

It would be a tough, complex legal case, with no easy answer - a case can be made that government mismanagement exacerbated the problems. But, at the same time, the heavy rains are a purelly natural event.

Its all moot, though, really, as the lawsuits would have to take place in Thailand - which Thai judge is going to rule against the Thai government, in favor of Japanese insurace companies?

[puntmeister]

S&P also pointed out that foreign insurers, especially Japanese firms, and foreign reinsurers currently appear to have to bear the bulk of the known losses in the industrial parks. But local insurers and reinsurers will be affected as well, despite bearing a smaller share of the losses.

As I said before they will probably engineer some method to put most of the burden on foreign insurers. Chances are good that no sane foreign insurance company will want to insure a Thai factory anywhere near a flood plain after this is over with.

And it is obvious that no sane company will invest inside any of the existing estates, and many will leave. They may become ghost estates. Someone had better come up with a very quick plan to work out where to put some new estates or FDI is going to reduce massively.

I heard anecdotally the other day, that one of the hard disk manufacturers had already started moving most of it's equipment to its facility in Philipines during the 2 weeks prior to their facility getting flooded. The cost of moving was a lot less than having all the machinery sitting idle for the duration of the flood. They left behind about 15% of the total machinery in the factory and the machines are already up and running over there. Anyone reckon they are coming back?

Yes, that's exactly it. The economic damage is going to extend well beyond just the capital losses incurred due to the immediate flooding. Its the aftermath - the loss in desirability of investing in/maintaining factories in Thailand.

Even if Thailand could get its act together and design/implement a system of avoiding such future disasters, it would take years to do. Even then, it may be an impossible mission, given the fundamental problems are due to get worse, not better.

If I were a foreign factory owner, I'd cut my losses and relocate.

[madmitch]

They seem to think that the reinsurers are just going to pay up with no questions asked.

I don't think so!

[scotto]

IMHO i think many foreign businesses will move to somewhere else ,

if they have a hard time getting their insurace money

then i would say they will definetly move ,

[peterdk]

What is it with Thais and numbers ?

They just have to throw out numbers on a daily basis don't they ?

Why don't they wait until after the flooding subsides, to see what the actual number is.

No doubt the insurance companies will have huge claims filed surely.

But to speculate on how much on a daily basis seems daft.

Flooding is still spreading in Bangkok, so nobody can know yet, how much more property will be damaged.

[Morgo]

Well, we will see if the Japanese insurance companies operating in Thailand will not sue the government/EGAT as the operators of the water dams.

Those dam operators are at sole fault closing their valves at the beginning of the rainy season just to open them in the last quarter of the monsoon so the overflow of the dams could submerge the country together with the last bit of monsoon rain. The BMA tried to do the same by fencing off Bangkok's city centre (it is understandable but not realistic).

How stupid can one be? If these insurance companies take these clowns running the country and these dams properly to the cleaners then maybe .... M A Y B E ..... the majority of the sheepish flock of Khon Thai will wake up and realize, that they were kept in uneducated snow white sleep while the rest of the world has arrived in the 21st century. How sickening is this?

The dams in question operated exactely as they were designed to operate. ie to provide irrigation.

If people want to live and work on a flood plain without adequate flood mitigation works, then they take their chances. But I think insurance companies will be a little hesitant when renewals come up.

[bigbamboo]

The insurance scrap is going to get even muckier than Bangkok will be when the water recedes.

[Sydebolle]

it is a clear case of "The Sorcerer's Apprentice" by Goethe .........

[OzMick]

Well, we will see if the Japanese insurance companies operating in Thailand will not sue the government/EGAT as the operators of the water dams.

Those dam operators are at sole fault closing their valves at the beginning of the rainy season just to open them in the last quarter of the monsoon so the overflow of the dams could submerge the country together with the last bit of monsoon rain. The BMA tried to do the same by fencing off Bangkok's city centre (it is understandable but not realistic).

How stupid can one be? If these insurance companies take these clowns running the country and these dams properly to the cleaners then maybe .... M A Y B E ..... the majority of the sheepish flock of Khon Thai will wake up and realize, that they were kept in uneducated snow white sleep while the rest of the world has arrived in the 21st century. How sickening is this?

The dams in question operated exactely as they were designed to operate. ie to provide irrigation.

If people want to live and work on a flood plain without adequate flood mitigation works, then they take their chances. But I think insurance companies will be a little hesitant when renewals come up.

Wrong! the dams serve a multi-function purpose - storing irrigation water, electricity generation and flood mitigation. If some policy maker decided that priority would be given to one function over the others, he should expect to have to explain the consequences of that decision.

[Time Traveller]

I heard anecdotally the other day, that one of the hard disk manufacturers had already started moving most of it's equipment to its facility in Philipines during the 2 weeks prior to their facility getting flooded. The cost of moving was a lot less than having all the machinery sitting idle for the duration of the flood. They left behind about 15% of the total machinery in the factory and the machines are already up and running over there. Anyone reckon they are coming back?

You heard "anecdotally" that one (1) factory moved to the phillipines. Oh my god!! Shock horror. Well good luck to them, because it never floods in the Phillipines, nor do they ever have problems with typhoons or labour strikes or corrupt incompetent bureaucracy either.

[Thai at Heart]

I heard anecdotally the other day, that one of the hard disk manufacturers had already started moving most of it's equipment to its facility in Philipines during the 2 weeks prior to their facility getting flooded. The cost of moving was a lot less than having all the machinery sitting idle for the duration of the flood. They left behind about 15% of the total machinery in the factory and the machines are already up and running over there. Anyone reckon they are coming back?

You heard "anecdotally" that one (1) factory moved to the phillipines. Oh my god!! Shock horror. Well good luck to them, because it never floods in the Phillipines, nor do they ever have problems with typhoons or labour strikes or corrupt incompetent bureaucracy either.

Hey if you don't find it all surprising that one of the largest disk drive manufacturers in the world had packed up and left before the majority of the flood had occurred, then boo to you. This flood may well cause hundreds of foreign investors to pack up and leave, insurance being one of the issues. If you like the idea of hundreds of thousands of Thai's in better paid unemployment being out of a job and the consequences, you are a very strange person.

This idea that everyone in the world is beating the door down to invest in Thailand, and all Thailand has to do is sit there and wait for the investment to come always was nonsense. All the countries in the region have their benefits and their drawbacks. It is just that I haven't heard too many stories of poor water management flooding massive industrial capacity in these other countries. Thailand will have to pull out all the stops to keep the companies that are all already here. Where are they going to be able to build new industrial estates so fast that companies can move in tomorrow, because if I was a company intending to go to Navanakorn, do you think they could convince me that this will never happen again?

As for attracting more, it wasn't as though the investment climate in Thailand was that rosy anyway. I mean, with a flourishing stable democratic style of government that gets ripped up every few years by coups, or more recently coloured mobs. Just what the CEO's of the world LOVE to see. Now floods. What next? Plagues of pestilence?

[hyperdimension]

As for attracting more, it wasn't as though the investment climate in Thailand was that rosy anyway. I mean, with a flourishing stable democratic style of government that gets ripped up every few years by coups, or more recently coloured mobs. Just what the CEO's of the world LOVE to see. Now floods. What next? Plagues of pestilence?

Add Pheu Thai's silly nationwide 300 THB daily minimum wage (and 15K THB monthly minimum wage for graduates).

Edited November 8, 2011 by hyperdimension