The insurance sector is bracing for higher costs and revised policies in the wake of a powerful earthquake that struck Thailand on Friday, causing widespread damage, including in Bangkok. Industry leaders have announced that free earthquake coverage will no longer be available, and policyholders can expect significant changes in how earthquake insurance is packaged and priced.
The Thai General Insurance Association (TGIA) revealed that earthquake insurance will now be treated as a separate policy from fire insurance. This shift comes as the frequency and severity of natural disasters, including earthquakes, continue to rise. Along with this separation, the association also anticipates an increase in premiums and deductible rates as insurers adjust to the heightened risks posed by such events.
“Thailand has never experienced an earthquake of this magnitude,” said Somporn Suebthawilkul, president of TGIA and CEO of Dhipaya Group Holdings. “The devastation caused by last Friday’s earthquake highlights that severe natural disasters are no longer unlikely events but serious risks that can cause immense damage to lives and properties.”
Historically, many Thai insurers bundled earthquake and flood coverage with fire insurance as part of their sales strategy. However, this practice is set to change as the risks associated with these disasters are becoming more apparent. “The recent earthquake is a wake-up call for us,” Mr. Somporn added. “The insurance industry must reassess and adjust its strategies to manage these risks more effectively.”
One potential response is the introduction of standalone earthquake insurance policies, with higher premiums and revised deductible rates. Currently, Dhipaya Insurance applies a 20% deductible on structural insurance for many high-rise buildings, a figure that may increase to 30% depending on the specifics of individual projects.
For new developments, insurers are likely to adopt more stringent risk assessments, taking into account factors such as the qualifications of construction companies. In contrast, completed high-rise buildings will be evaluated based on factors like usage and occupant profiles to ensure a more comprehensive risk evaluation.
Mr. Somporn emphasized that the earthquake’s aftermath provides valuable lessons. “We are in the process of assessing the impact on insured customers, but it will take time to fully understand the extent of the damage,” he said.
In the case of the Office of the Auditor General’s building, which collapsed while under construction, the project’s Contractor All Risk (CAR) insurance is valued at 2.24 billion baht and is covered by four non-life insurance companies: Dhipaya Insurance (40%), Bangkok Insurance (25%), Indara Insurance (25%), and Viriyah Insurance (10%). Mr. Somporn reassured that all four insurers are financially robust and equipped to handle the claims, noting their annual stress tests and reinsurance agreements with both domestic and international partners.
The final compensation payout will depend on ongoing investigations into the cause of the collapse and the full assessment of damages under the terms of the policy.
Looking to the future, Mr. Somporn warned that the frequency of natural disasters is likely to increase due to climate change. As such, he stressed that all sectors—government, businesses, and the public—must remain vigilant and prepared.
“Insurance plays a crucial role in alleviating the financial burden of catastrophic events,” he concluded. “By sharing coverage for large projects with multiple insurers and reinsurers, the industry is better positioned to manage the risks and mitigate potential financial losses.”
Related topics
