The insurance industry is preparing to mitigate the impact of natural disaster risks after most parts of Thailand, including Bangkok, were hit by a strong earthquake on Friday, pointing out that free earthquake coverage would no longer be available.
As the risk of earthquakes and other natural disasters has intensified, free earthquake coverage will no longer be offered, and earthquake insurance is expected to be separated from fire insurance, according to the Thai General Insurance Association (TGIA).
Besides, disaster premiums are likely to increase, along with an increase in deductible rates to reflect the growing risk, it added.
"Thailand has never experienced such a strong earthquake as the one that rocked the country last Friday," said TGIA president Somporn Suebthawilkul.
Previously, insurance companies often bundled disaster coverage, such as coverage for earthquakes and floods, with fire insurance policies for buildings, high-rise buildings and residential homes as a strategy to boost sales, said Mr Somporn, who is also chief executive of Dhipaya Group Holdings.
"This situation underscores that severe disasters like earthquakes are no longer remote possibilities," he said. "They can cause immense damage to both life and properties. As a result, TGIA and its members must reassess and adjust their strategies to effectively manage these growing risks."
One potential measure, according to Mr Somporn, is to introduce standalone earthquake insurance policies, increase disaster insurance premiums, and adjust deductible rates. For instance, Dhipaya Insurance currently applies a 20% deductible on structural insurance for many high-rise buildings. This may rise to 30% or be adjusted based on project-specific risks.
For projects that have not yet begun construction, insurers may evaluate risks more rigorously, considering factors such as the construction company's qualifications. Meanwhile, for completed high-rise buildings already in use, insurers will take into account building usage and occupant profiles to ensure a more cautious approach to risk assessment, he noted.
"The damage from this earthquake serves as a crucial lesson. Currently, all relevant parties are assessing the impact on insured customers, a process that will take time," he said.
With regard to the collapse of the Office of the Auditor General's building, which was under construction, initial information suggested that the project's Contractor All Risk (CAR) insurance was worth 2.24 billion baht and was underwritten by four non-life insurance companies.
Those are Dhipaya Insurance (40% of the total insurance value), Bangkok Insurance (25%), Indara Insurance (25%) and Viriyah Insurance (10%). All four insurers have maintained strong financial positions and are well-prepared to handle the claims, said Mr Somporn.
Additionally, these companies conduct annual stress tests to assess their financial resilience in various scenarios, ensuring their ability to manage large-scale damage. They also utilise reinsurance agreements with both domestic and international reinsurers, which helps to distribute risk and minimise the financial impact on their own balance sheets.
The final compensation payout will depend on the investigation of the cause and a thorough assessment of the damages in accordance with policy terms, Mr Somporn said.
He said disasters are expected to intensify in the future due to climate change. Therefore all sectors, including the government, private businesses, and the public, must stay vigilant and prepared.
Insurance plays a crucial role in mitigating financial burden from such catastrophic events. To manage risks effectively, insurers typically share coverage for large-scale structural projects, such as CAR insurance, with multiple companies and reinsurers. This collaborative approach helps reduce exposure to potential financial losses, he noted.
