Thailand Severely Exposed To Long-Term Catastrophe Costs: Study

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DAMAGE INSURANCE

Thailand severely exposed to long-term catastrophe costs: study

THE NATION

BANGKOK: -- Thailand is among 17 high-growth economies that are severely exposed to the long-term costs of catastrophic events, given their annualised US$168-billion (Bt5.15-trillion) in-surance deficit.

Thailand alone would face a $1.4-billion annualised insurance shortfall, meaning that it is severely under-insured, according to a new independent study conducted by the Centre for Economics & Business Research (CEBR) and commissioned by the world's insurance-market specialist, Lloyd's of London.

The research highlights clear risks for countries affected by this shortfall, including an unnecessary burden placed on the state and a higher cost of recovery after disasters.

With the cost of natural-catastrophe damage increasing every year, Lloyd's is calling for more action by businesses, governments and insurance companies to adjust to the threat this insurance shortfall presents to jobs, homes and businesses in those economies most affected.

They are Hong Kong, Poland, Colombia, Thailand, Brazil, Mexico, Saudi Arabia, mainland Chile, China, Nigeria, India, Turkey, Egypt, the Philippines, Vietnam, Indonesia and Bangladesh.

"With Superstorm Sandy still fresh in all our minds, I hope that this research will stimulate a debate on how governments - and businesses - manage the risk of natural catastrophes," said Richard Ward, chief executive of Lloyd's. "It also raises an important question of the merits of risk transfer versus the use of public funds to cover the cost.

"Insurance exists for two simple reasons: to help prevent losses from happening in the first place, but to alleviate the financial consequences if disaster does strike.

"As this research underlines, too many high-growth countries are failing to take the steps required to prepare properly for these sorts of events, leaving people and businesses exposed. As high-growth economies continue to develop and supply chains become increasingly interconnected, now is the time to ask ourselves: can the world afford to keep taking such a big risk?" he said.

Thailand bears an excessive proportion of the cost of natural catastrophes in countries with a low level of insurance. A 1-per-cent increase in a country's insurance penetration can reduce state liability by as much as 22 per cent. For example, last year's floods in Thailand resulted in estimated damages of $30 billion, and yet just 3.47 per cent was covered by insurance. Because of the insurance deficit, this left the government with a bill of $18 billion.

Post-catastrophe recovery costs are lower in countries that have higher levels of insurance. A 1-per-cent increase in insurance penetration delivers a 13-per-cent reduction in uninsured losses, according to the study.

The pace and extent of global economic development have seen the cost of catastrophes grow by $870 billion in real terms since 1980. The level of natural catastrophes last year saw $107 billion of insurance claims - the second-costliest year overall for the insurance industry, and the costliest for natural catastrophe claims on record.

In the research, an analysis of five major global disasters showed that only 21 per cent ($115 billion) of total economic loss of $538 billion was covered by insurance across the world.

Mainland China insured just 1.4 per cent of losses arising from natural catastrophes between 2004 and 2011, with $208 billion in uninsured losses. In five of the 17 economies identified as severely underinsured, the average uninsured loss for major catastrophes is at least 80 per cent. The average uninsured cost of catastrophe in mainland China is $18.91 billion; in India, $1.96 billion; and in Indo-nesia, $1.45 billion.

Higher levels of insurance correlate positively to economic growth. A 1-per-cent increase in insurance penetration is associated with increased investment of 2 per cent of national gross domestic product.

"This 'insurance gap' has a huge and lasting impact on the ability of businesses, governments and people to recover from the earthquakes, hurricanes, flooding and forest fires that affect us all every year," said Douglas McWilliams, founder and chief executive of CEBR. "This means lost orders, lost jobs and wasted taxpayer money as a failure to prepare ahead of such events creates costs that are more severe and unmanageable."

Businesses need to take a more long-term view. Risk management needs to be a board-level issue and businesses should invest more in short-term preparation for long-term protection. This means better contingency planning to protect supply chains, he said. Governments need to invest more in mitigation measures, such as flood barriers and coastal defences, and promote strong building codes to minimise the damage done by the next big natural catastrophe in a fragile fiscal climate. Governments can also help their economies by opening up markets to private insurers to increase the capacity available to underwrite risks, he added.

The insurance industry needs to take steps to understand better risk in growth economies - enabling them to research and price new risks. This could include investing in relationships with insurers in unfamiliar territories, where the problem of underinsurance is most severe, and doing more to develop a range of products and models for new clients in growth economies, said the CEBR chief.

-- The Nation 2012-11- 28

[Pond Life]

Insurance ! just another scam.

[asiawatcher]

It is not up to Lloyds or any insurance company to dictate increases in premiums. Insurance is a personal matter and business can and do elect what needs to be insured. In the case of Thailand's floods, much of the damage was a direct result of incompetent water management and not releasing water when the opportunity was there. So the bill rests with the Government (who could not care less as it becomes another way they can milk treasury).

[TallGuyJohninBKK]

It seems to me that the insurance industry is talking out of both sides of their mouth here.

Last year, in the wake of the national floods, my Thai/international property insurance provider, a well-known company, basically declined to renew their existing policies. At the time, my Thai broker told me it was because the insurance companies at that time weren't able to obtain non-Thailand reinsurance for their risks, or in other words, because the huge reinsurers (perhaps like Lloyds) didn't want exposure to the screwed up mess that is Thailand.

But now they're coming along and complaining that countries like Thailand are under-insured?

In any event, as best as I've been able to gather, the typical Thai citizen doesn't care much about property or liability insurance at all...

[LuckyLew]

An insurance salesman telling people they must and need to get more insurance

is kind of like My Toyota or Henry Ford telling everyone they must get a new car

[DDuval]

Insurances, 21 century Scam nothing more !!

[DGS1244]

Obviously written by someone who has not got a clue how insurance and re-insurance works. Every Thai insurer is so underfunded that none of them have enough money to pay out hardly any claims even small ones. Companies that are either not insured or under-insured are just putting their share holders at risk.

[Tatsujin]

Insurance exists for two simple reasons: to help prevent losses from happening in the first place, but to alleviate the financial consequences if disaster does strike.

I might have missed something, but how does having insurance prevent losses from happening in the first place? Surely its sole purpose is to help recover from something AFTER it happens?

[Pib]

You can't even get Thais to wear seatbelts; getting them to buy insurance is an even bigger sell.

[scorecard]

You can't even get Thais to wear seatbelts; getting them to buy insurance is an even bigger sell.

Yes, and you can find plenty of Thais who have been tricked/talked into buying policies which are inappropriate, so the word gets around quickly - it's a scam.

My Thai daughter-in-law got pressured by her 'best friend from high school' to buy two policies, both of which were very inappropriate.

Turns the agent has been banned by two high profile life assurance companies but sh'es still at it as an agent for another insurer.

Different example, fire in my condo building, severe smoke damage to my condo. Had contents policy with a high profile UK based insurer. I finally stopped trying to get some reimbursement because the demands for more and more ridiculous documentation just kept coming.

One of their senior Thai managers eventually came to our condo and said, 'why don't you just repaint everything yourself?' (at my expense of course). My Thai son told him to leave.

Edited November 28, 2012 by scorecard

[TallGuyJohninBKK]

I think there's a difference between property and liability insurance, which is the main subject of this thread, and the range of crappy life insurance policies sold by a variety of questionable/disreputable companies here using who knows who as their agents... kind of a multi-level marketing scam.

The way the police and courts system works here, I wouldn't want to be renting a home (condo, house, apartment, etc.) anywhere without having an appropriate liability insurance policy from a hopefully somewhat reputable company.

[McMagus]

It is apt that this topic has raised its ugly head. On the subject of personal insurance, I watched the missus' friend trying to read her life insurance policy. Bad enough in English but it was painful watching her trying to read, as clearly she was not as literate as we would wish. I can't read Thai but was able to get enough info to show her that... her 'death benefit' of 100,000 B had already been surpassed by her premiums in just the first 5 years of the policy. She is supposed to pay for 25 years which would mean her shelling out 1,200,000 B all for a return of 100,000 B I'm off to the company tomorrow with ladies in tow. I want someone to explain the morality of selling this crap to a farmer who can hardly read.

[McMagus]

Sorry ... but I am sooo #*&@&%^ angry. ... all good Buddhists I expect.

[Payboy]

It seems to me that the insurance industry is talking out of both sides of their mouth here.

Last year, in the wake of the national floods, my Thai/international property insurance provider, a well-known company, basically declined to renew their existing policies. At the time, my Thai broker told me it was because the insurance companies at that time weren't able to obtain non-Thailand reinsurance for their risks, or in other words, because the huge reinsurers (perhaps like Lloyds) didn't want exposure to the screwed up mess that is Thailand.

But now they're coming along and complaining that countries like Thailand are under-insured?

In any event, as best as I've been able to gather, the typical Thai citizen doesn't care much about property or liability insurance at all...

It seems this year AXA is offering their flood insurance again, but as a special rider. Baht 2,000 premium per Baht 100,000 of coverage. Sounds like a monumental rip-off alright.

[TallGuyJohninBKK]

Yep, my property insurer in the past had been AXA, and they were the ones who bailed out of renewals last year.

This year, I've got my policy term coming up soon, and my agent's given me a policy quote from AXA once again...but with different terms that I haven't yet delved into.