Thailand flood losses rise, over $3.3 billion insurance claims, and rising

by Artemis on October 27, 2011

Northern Thailand is currently facing the worst flooding the country has seen for over 50 years due to a period of torrential rains which have been increasing river levels over the last couple of months. More than 360 people have been killed by the rising floodwaters and much of the north of the country has lost its rice crop this year, a major part of Thailand’s export economy.

Hundreds of thousands of homes have been destroyed or damaged by the flooding and the impact to Thailand’s manufacturing sector has been huge as while factories have been swamped by the flood waters. This is leading to a huge amount of insurance claims and the potential for major contingent business interruption development.

As much as a third of the country is under water and the flood waters have yet to peak. This coming weekend is a public holiday and the Thai government are urging residents to leave the capital of Bangkok if they can as the river flooding affecting the city is due to increase as flood waters move down stream. There are also concerns due to high tides which are due to affect the coast over the coming days.

So far the floods are estimated to have affected as many as 8 million people and caused over $5 billion in economic losses. To date, according to this update from the 25th by Guy Carpenter, around $3.3 billion of insurance claims have been filed so far. Given the scale of the flooding and the number of people affected this figure is still quite low due to the lower rates of insurance penetration in Thailand. However it is large enough to cause a significant loss to reinsurers in a year that has seen near-record catastrophe losses. These figures are likely to rise significantly, due to longer tail business interruption claims and if the flooding worsens in the capital Bangkok.

Most of the claims are not from the estimated 800,000 damaged or destroyed homes, as household insurance take-up is said to be as low as 1%. Rather they are from industrial areas, factories, shops and other businesses. Many foreign companies have manufacturing bases in Thailand and these are mostly covered by flood insurance, they are also mostly in the worst affected, low-lying flat areas on the outskirts of Bangkok.

According to Bloomberg, Japan’s casualty insurers are facing as much as $2.5 billion in losses due to the Thai floods. Japanese property and casualty insurers are responsible for as much as 70% of the underwriting for seven flooded industrial estates that are facing damages of up to $13 billion. That’s a much higher figure than the estimates from Guy Carpenter for economic losses and the final loss toll from these floods could be huge.

According to the article in Bloomberg, around 9,850 factories with a value of 800 billion Thai baht have been flooded, that’s a potential loss of $26 billion.

So the final extent of losses to be faced by insurers and reinsurers from this event is still unknown but certainly rising fast. As insurance penetration, and therefore reinsurance, rises in countries in Asia, these types of loss events are going to become much more of a burden on the international reinsurance markets. In fact, as development continues apace and the amount of exposure grows, the reinsurance industry is certainly going to need support from the capital markets to hedge the risk of these major events occurring. The capital markets and reinsurance convergence sector are going to find their services in high demand in Asia, and other developing regions of the world, in the coming years.

Catastrophe bonds are obviously an option for covering the growing natural catastrophe and weather risk exposures but for events which develop over time like these floods, caused by over two months of rains, reinsurers and counterparties may need to develop a more flexible and customised approach to risk transfer.

To fully appreciate the extent of these floods in Thailand see these photos from the Atlantic.

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