joestaner: Insurance claims to exceed Bt600 billion

Home ? business ? Insurance claims to exceed Bt600 billion

Insurance

Achara Pongvutitham
The Nation November 7, 2011 8:01 am

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.