Kittiratt seeks doubling of flood insurance fund | Bangkok Post: business

The government is considering whether to double to 1 trillion baht the maximum coverage of a proposed insurance fund for losses from natural catastrophes.

"New Finance Minister Kittiratt Na-Ranong wants the fund to extend its coverage as well to large-scale industrial factories," said a Finance Ministry source who asked not to be named.

"Such a move would help to restore confidence among those large factories that were hit hard by the recent floods."

To expand coverage to 1 trillion baht, the government must increase the size of the fund from the original 50-billion-baht plan that provides maximum insurance coverage of 500 billion baht, the source said.

Pravej Ongartsittigul, secretary-general of the Office of the Insurance Commission, said the framework of the proposed insurance fund would be subject to slight changes, particularly in terms of coverage expansion and the proportion that insurance firms would pay for losses incurred.

He said the new framework would call for a sublimit _ a limitation on the amount of coverage available to cover a specific type of loss _ for both SMEs and large businesses of 20% of the sum insured but not exceeding 200 million baht.

In the previous framework, SMEs would be sublimited to 20% of the sum insured but not exceeding 5 million baht. Large businesses would be sublimited to 10% of their insured sum but not exceeding 50 million baht.

Revisions will not apply to private homes, which will receive maximum insurance coverage of 100,000 baht.

With regard to payment of losses incurred, in the new model each insurance company will have to pay for losses of at least 1% of the insurance coverage, while the rest of the loss payment will be transferred to the fund.

Later on, the government will diversify risk to foreign reinsurance companies.

The timing at which the government decides to cede the pool to reinsurers will depend on the premium rates offered by reinsurance companies, said Mr Pravej. This in turn will depend on their trust in government water management and related infrastructure.

"Once concrete measures are implemented, and once reinsurers regain trust that such large-scale floods will not happen again, reinsurance rates will naturally be lowered," he said.

The new method is different from the initial framework, which said the first losses would be paid by insurance firms themselves at the coverage sum of 2 billion baht.

Beyond this the government would step in to shoulder the next 28 billion baht in liabilities, with the remainder of the losses (up to 500 billion baht) to be paid in three sublayers by foreign reinsurers.

Under the previous scheme, the first sublayer would cover losses of 140 billion baht, followed by 150 billion and 180 billion.

In other words, insurance companies and the government together would shoulder the first 30 billion baht in losses that might be incurred by private households, SMEs and large businesses. The rest would be covered by reinsurance companies.

Mr Pravej said the final details for the entire framework will be out in two weeks.

"The premium rate [for natural catastrophe] will definitely be lower than the current post-flood rates that are too high but will be higher than the pre-flood rates," Mr Pravej said.

"However, this depends on whether the government is able to cultivate trust in the reinsurance industry, as a lack of trust would automatically be reflected in insurance premium rates."

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