A recent online publication of Insurance Journal highlighted A.M. Best Co.’s quarterly estimates of insurers’ losses from the Thailand floods. The current estimate is $15 billion, a 50% increase since Best’s last briefing of Nov. 23, 2011. According to the briefing, the loss is now in a tie for the fifth (5th) costliest insured loss event in the past 31 years. It has been reported that the floods have damaged or destroyed more than 4 million homes, businesses, and manufacturing facilities and that the amount of structural damage is actually four times greater than the damage resulting from Japan’s earthquake and tsunami in March 2011.
In The Importance of Having a Plan B – Understanding Business Interruption Coverage, Part 97, I noted a trend that had been published in several claims magazines:
Many Japanese companies moved production to Thailand or found alternative component suppliers in Thailand after March’s devastating earthquake and tsunami. The move helped many companies mitigate their losses in the Japan disaster, but many face further losses as a result of flooding in Thailand this fall.
The problem for insurers who provide business interruption cover to Japanese manufacturers is that they have to cover the losses stemming from the Thai flooding because so many businesses moved some or all of their supply chain there.
The February 2012 AM Best report confirmed the reported problems finding that:
Insured parties have several limitations on their ability to make CBI claims. If property insurance does not cover a certain peril, then related CBI claims will not be covered. Insurers could encounter reinstatement issues and face problems on first-loss limits from firms with multiple locations, as dates of damage vary for different industrial estates. Event limits were not always specified in Thai insurance contracts. Classifying the floods as multiple events could increase costs for the insurers/reinsurers that are involved. Many impacted companies moved to Thailand to mitigate losses from the March 2011 earthquake and tsunami in Japan. As a result there are increasingly complex “causation and adjustment issues.
The Best report further stated that “unprecedented flooding has forever changed the perception of risk in Thailand and brought about significant changes to the Thai insurance industry,” and that it expects to see “additional upward revisions to initial loss estimates given the overall uncertainties and previous experience with other significant, un-modeled losses.”