Thailand Nonlife Insurers Support Natural Catastrophe Fund

Thailand's nonlife insurance industry is supporting the Office of Insurance Commission's plan to set up a 50 billion baht (US$1.6 billion) catastrophe fund to provide insurance coverage for floods, windstorms and earthquakes.

The catastrophe fund is the first in Thailand and most nonlife insurance companies agree with and support it, said Thanad Jeerachaipaisarn, executive director of the General Insurance Association. The catastrophe fund will offer protection for households, small and medium enterprises and industrial factories.

"This catastrophe fund will act as a primary reinsurer and the fund will purchase a reinsurance program to enhance capacity," said Jeerachaipaisarn. Under the fund, catastrophe losses between 30 billion baht and 500 billion baht would be reinsured by foreign reinsurance companies, according to the OIC. 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.

The government-backed catastrophe fund will be run by an independent committee, said Jeerachaipaisarn. The OIC has been in discussions with the insurance trade body and all 67 nonlife insurance companies in Thailand.

Thailand was hit by severe flooding in recent months that brought nationwide damage to residential, farming and industrial properties. In total, more than 9.4 million people were affected by the floods in at least 64 of the country's 77 provinces. Factories were swamped and more than 10% of Thailand's rice farms were destroyed, according to a report by reinsurance intermediary Aon Benfield. More than 14,800 industrial and manufacturing plants were damaged by floods in 20 provinces.

The Thailand flooding was the second-largest global natural catastrophe in terms of overall losses in 2011, following Japan'sMarch 11 earthquake and tsunami. The floods resulted in overall economic losses of about US$40 billion and insured losses of US$10 billion, according to Munich Re.

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.

The regulator said it 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" (Best's News Service, Jan. 20, 2012).

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.

(By Iris Lai, Hong Kong bureau manager: [email protected])