• Struggling for survival |
IDENTIFICATION Covered for everything but the wave One-off catastrophe forced businesses to rethink their protection and insurers to clarify what's covered The Khao Lak Orchid Resort was left on the verge of liquidation after it was ravaged by the devastating tsunami on Dec 26. The wave not only devastated the new resort, which had opened on Nov 12, but also threatened its future as it had no insurance coverage. ''The creditor bank had promised to organise an insurance policy for us after the new year [of 2004-05], but the tsunami struck us just a week before [the new year],'' said Jirapa Lertkulthana, the hotel's general manager. According to Ms Jirapa, the resort owners had invested about 100 million baht, with a majority of the funds coming from a loan secured from the Bank of Ayudhya. More than 60% of the resort was devastated by the tsunami, and without insurance coverage the owners took full responsibility for the financial loss, estimated at more than 60 million baht excluding the loss arising from the interruption of business. ''It would have been much better and safer if the resort had been fully or partially covered by insurance,'' said Ms Jirapa. She said it was nobody's fault, despite the fact that the bank should have convinced the borrower to seek insurance coverage at the outset. ''The tsunami was a natural phenomenon. Nobody here expected it could happen in Thailand,'' she said. ''We [the resort operators] saw no urgent need for an insurance policy that covered a tsunami, as the country is generally not prone to natural catastrophes on the scale of the huge wave.'' But a tsunami did occur, devastating six southern provinces and leaving more than 5,000 dead. Above all, it destroyed regional tourism and has led a loss of business for the Khao Lak Orchid Resort for at least a year. The tidal wave also put the domestic insurance business in disarray, particularly in terms of interpreting the insurance coverage on policies that did not insure against all risks. Industrial ''all risks'' policies cover damage arising from fire, lightning, explosions, storms, floods and earthquake to properties such as factories, resorts and hotels. A highly contentious issue involved the interpretation of the phrase ''risk from water or flood'' in insurance contracts. While the Insurance Department and other experts have concluded that a tsunami is a huge, one-off tidal wave and not a flood, which is defined as a large amount of water that covers a usually dry area, insured businesses insisted that it was a flood that had wrecked their properties. The Khao Lak Orchid Resortel, for instance, had borrowed 22 million baht from the Bank of Ayudhya to build and, at the bank's request, insured the structure for 17.5 million baht with its affiliate, Ayudhya Insurance. Consequently, it reduced the amount of industrial all risks coverage it had taken out with a third party, Navakij Insurance. Unfortunately, company executives did not closely read the Ayudhya Insurance policy, which covered only limited risks. After the company submitted its claims, Navakij paid out 10 million baht but Ayudhya rejected the claim, saying its policy covered only risks from floods and fire and not from an earthquake. The argument prompted the owners of the Khao Lak Orchid to circulate complaints in the middle of this year to the Prime Minister's Office, the Consumer Protection Board, the Insurance Commissioner and the press. However, the operator preferred to get the -resort operating again rather than blame its bank. The resort sought a state-promoted financial assistance package worth around 40 million baht, including a soft loan from the existing creditor bank, mostly to rebuild the construction. The resort reopened on Nov 11, but only eight or nine of its 56 rooms were occupied. ''Tourists remain worried about tsunamis,'' said Ms Jirapa. Having experienced the loss, the resort has now sought insurance coverage for all risks, including a tsunami, worth 150 million baht. Potjanee Thanavaranit, director-general of the Insurance Department, said the tsunami had helped to stimulate awareness of insurance, particularly for large-scale businesses. It has also created awareness of the importance of risk management, particularly among the private sector, she said. Now, creditors often convince local borrowers to seek all risks insurance coverage. As of the end of August, a total of 4,064 tsunami claims had been made for non-life insurance, with coverage worth 9.44 billion baht. Of these, 3,615 claims worth 7.322 billion baht had been paid out. For life insurance, the figure was much lower, with claims totalling 309.16 million baht to 667 policyholders who were reported dead or disappeared as of the end of June. Around 281.39 million baht was paid out to 609 beneficiaries of policyholders. |
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