Thai Regulator Looking to Set Up Catastrophe Fund

Thailand'sOffice of Insurance Commission is looking to set up a 50 billion baht (US$1.6 billion) catastrophe fund after the country was hit by severe flooding in recent months that brought nationwide damage to residential, farming and industrial properties.

The regulator has been in discussions with the General Insurance Association and all the 67 nonlife insurance companies in the country after the plan to form a catastrophe fund was approved by the Council of Ministers, said Pravej Ongarsittigul, secretary general of the OIC, in a statement.

The fund will provide insurance coverage for floods, windstorms and earthquakes to households, small and medium enterprise and industrial factories, according to the OIC. The regulator has held meetings with the industry "to discuss the principle, purpose and structure of the fund and ways to bring about a maximum number of policies, the lowest premium rates and the use of zoning to allow the coverage to be accessible to everyone."

Under the fund, catastrophe losses between 30 billion baht and 500 billion baht would be reinsured by foreign reinsurance companies. Insurance companies will be responsible for cover of losses up to 2 billion baht. The government would take over through the catastrophe fund for losses between 2 billion and 30 billion baht, according to the OIC.

Less than 1% of households in Thailand have insurance coverage for flood. Household insurance only covers fire but the owner can buy additional protection for flood, according to the General Insurance Association. Most commercial properties such as factories have industrial all-risk policies with flood cover. Production or business interruption cover is separate from industrial all-risk policies.

Initially, the catastrophe fund would be sub-limited to 100,000 baht per household; 20% of sum insured with a limit of 5 million baht per small and medium enterprise; and 10% of sum insured with a limit of 50 million baht per industry company.

Thailand's nonlife industry will consult with the participating insurance companies to set appropriate ratios and risk threshold, said Jiraphant Asvatankul, president of the General Insurance Association. Asvatankful said he "agrees with the first 2 billion baht being the responsibility of insurance companies."

"Since the scale of last year's flood is unprecedented, we will have to thoroughly study insurance schemes in other countries," said Ongarsittigul. Last year's floods were the worst in about 50 years in Thailand, bringing estimated industry insured losses that some insurers and reinsurers estimate at up to US$15 billion (Best's News Service, Jan. 19, 2012).

(By Iris Lai, Hong Kong bureau manager: Iris.Lai@ambest.com)