More than a year after devastating floods in late 2011 that cost more than US$10 billion in insurance losses and $40 billion in overall losses, Thailand's insurance market has recovered, with foreign reinsurers willing to accept more flood peril risk.
Pravej: Market has changed forever
But the market landscape will no longer be the same, says the regulator.
"Businesses are now running as usual," said Pravej Ongartsittigul, secretary-general of the Office of the Insurance Commission.
"But the market will not be the same any more after the massive floods, as Thailand is no longer singled out as a flood-free zone by the reinsurance market."
Flood coverage used to be practically free for clients who bought fire insurance to protect property such as homes, townhouses and commercial buildings.
It was traditionally added to fire insurance policies, for which premiums were 0.1% of the sum insured.
The premium for flood coverage shot up to as high as 10% after the floods, while most foreign reinsurance firms were reluctant to accept natural perils insurance for Thai firms, prompting the government to set up 50-billion-baht natural catastrophe insurance fund aimed at gaining public confidence and helping the insurance industry to function.
The government has also allocated 350 billion baht for the country's water management infrastructure projects.
"The fast response and the government's action plans to prevent repeated flooding helped the insurance market recover faster than expected," Mr Pravej said.
"Foreign reinsurers have now come back to the Thai market and been competing on pricing since the middle of last year."
Mr Pravej said the absence of extensive floods last year and the government's commitment to invest in long-term flood prevention have helped to reduce premiums.
Rates have gradually dropped to 2-5% of the sum insured for policies that feature a sublimit (a limitation on the amount of coverage available to cover a specific loss) of 5-10% of the sum insured.
In the past, there was no such sublimit requirement for Thailand.
Although Thai firms are now eligible for full insurance cover, premiums are relatively expensive, Mr Pravej said.
After the 2011 floods, relevant parties have accelerated the claim settlement process, with all payouts expected to be completed this year except for those relating to more complicated business interruptions.
"Business interruption remains an issue of argument, particularly for tourism-related operators and hotels whose businesses were indirectly affected by the floods," said Mr Pravej.
Malcolm Steingold, the chief executive of Aon Benfield Asia Pacific, told the 13th Asia CEO Insurance Summit, held in Bangkok Wednesday and yesterday , that the most obvious lesson learned from the floods is not to assume any country to be free of catastrophe.
Just because a particular catastrophe peril is not modelled does not mean it does not exist, he said.
It is important to have high-quality data and a deep understanding of aggregate values within an insurance company's risk profile.
Other perils are important such as the high potential of business interruptions, Mr Steingold added.