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Property Insurance
Introduction
In 1999 Fire premiums amounted to THB 7.923 billion (US$ 198 million), or 17%
of the total market. Fire premiums have contracted 12% Year on Year from 1998.
Fire premiums are subject to a strict tariff calculated and enforced by the
Department of Insurance. Partial tariff-exemption is granted for large risks
which qualify for Industrial All Risks policies. A new tariff was introduced in
April 2000, and which reduced average Fire rates by between 10% and 25%. The
revised tariff, combined with the soft international Facultative market in
which IAR policies are rated, could lead to a flat growth of the Fire account
in 2000.
Many of Thailand's largest Fire risks are insured under IAR policies. By
tradition some insurers account for IAR premiums and losses in the Accident
Department rather than the Fire Department. This has had the effect of
flattering the Fire Department loss ratio, particularly in 1995 when a US$ 47
million department store Fire loss fell under an IAR policy.
The market was badly affected by a succession of similar department store Fire
losses in 1995. This has led to an upsurge of interest in risk management which
has traditionally been neglected.
Building Regulations
Until very recently the Thai Building Code has been notoriously lax, both in
its requirements and its enforcement. Improvements introduced in the last three
years include the following:
(
a) Sprinklers to be installed in new high-rise buildings
(b) Dry (but not wet) risers now mandatory
(c) Minimum 12 metres fire separation between new buildings (6 metres either
side of the property boundary)
(d) Buildings to be set back from the road to allow Fire Brigade access
(e) Helicopter landing pads to be provided on high-rise buildings
It is said that the new regulations are being rigorously enforced.
Built Environment
The type of construction seen in Bangkok varies dramatically with age. The
historic commercial areas, mainly concentrated along the banks of the Chao
Phraya River, are densely occupied and include numerous market buildings and
godowns (warehouses) of timber construction. Backstreets and alleys ('sois')
are occupied by traditional shophouses, incorporating retail, warehousing,
light industrial and residential usage. Construction is low-rise and largely
non-combustible, but the lack of separation allows fire to spread between
buildings through opposed window-openings.
Bangkok has seen an explosion of construction activity over the last fifteen
years, and the city skyline is now densely populated with high-rise office
blocks, hotels and condominiums. The tallest tower, is 85 storeys and the
average height around 30 storeys. Construction standards follow Western models,
though as pointed out above, fire control requirements have until recently been
below international norms.
Bangkok and other large cities include numbers of modern 'department stores'.
These are really a combination of shopping mall and the traditional market and
provide accommodation for large numbers of 'shops within shops'. Fire
prevention is often at an inadequate level, and the large numbers of individual
tenants make it difficult to enforce uniform standards of housekeeping. There
were 6 serious department store fires in 1995, all of which started either in
communal rest rooms or in individual shop units. Few department stores are
sprinklered, most relying upon hydrants.
The quality of industrial construction again varies with age. There are large
numbers of older processing plants associated with the important agricultural
export sector, such as rice mills and jute mills, but also increasing numbers
of high-grade modern electronics factories.
Fire Protection
There is no Fire Protection Association and the insurance industry has
traditionally taken little interest in fire protection, (reflecting, it is fair
to say, the indifference of its customers). More companies are now more serious
with risk management employing full-time risk engineers to do risk surveys and
loss prevention programmes. Sprinkler systems are little used, though new
Building Regulations have now made them mandatory for high rise buildings.
Sprinklers are occasionally found in department stores and hotels, but never in
industrial or warehousing risks, which mainly rely on hydrants.
The Fire tariff allows up to 40% discount for sprinklers and 2.5% for portable
appliances.
Fire Brigades
There is considerable variation in the efficacy of Thailand's fire brigades.
The old areas of Bangkok, where the conflagration risk is highest, tend to be
located along the Chao Phraya-River or the city's canals, which provide a
limitless supply of water. The municipal brigade is equipped with fire-fighting
tugs which would be able to reach the scene of a fire more quickly by river
than motorised appliances could by road.
Motorised appliances are generally old, and the municipal brigades are
ill-equipped to deal with high-rise fires. Fire hydrants exist in Bangkok but
water pressures are too low to deal with fires above the sixth floor of a
building. Water supplies can be limited in some of the other cities and rural
areas. The main problem in Bangkok, however, is traffic congestion, where
frequent 'gridlocks' can make it impossible for appliances to reach a fire
before it has effectively burnt itself out. Outside Bangkok the average
response time is said to be 15 to 20 minutes.
The situation is much better on the purpose-built industrial estates which are
equipped with hydrants and modern appliances.
Risk Management
Following a spate of department store losses in 1995, the General Insurance
Association is trying to force its members to survey all risks. However, the
effectiveness of this initiative is being hampered by a shortage of skilled
personnel, and insurers sometimes have to sub-contract complex surveys to
international brokers or reinsurers. However, most international insurers
employ full loss control engineers. (see IAG Thailand's Risk Engineering Dept.)
Insurers report that their insureds are extremely unresponsive to risk
management. Insureds will either refuse to allow a surveyor onto their
premises, or will refuse to carry out his recommendations. The industry is in
the learning curve and need to educate the insureds the important of risk
management.
Burglary
At the moment, however, it tends only to be written as part of an Industrial
All Risks package, and is regarded as a minor hazard compared to the target
perils of Fire, Flood and Water Damage.
Thailand is the largest gem-stone centre in Asia. There are believed to be two
or three Jewellers Block binding authorities in the market, but little business
is written, largely because the local traders regard worldwide Jewellers rates
as too expensive.
The main problem area for Burglary would seem to be the Household Contents
account. Despite extremely high rates, the business still loses money, and some
insurers have withdrawn from the market. Intruder alarm devices or other
prevention equipment are not widely used by the home owners.
Strikes, Riots and civil Commotions
Thailand is a potentially explosive society, with a history of military coups,
violent demonstrations and destruction of property. Some of the more striking
recent events have been as follows:
• 1986 - A riot at Phuket resulted in damage estimated at US$ 50 million to the
refinery of Thailand Tantalum Industry, the Merlin Hotel, the Town Hall and
some bank branches.
• 1990 - There were disturbances in the southern part of the country involving
the minority Muslim population. No insured losses were reported.
• 1992 - Street demonstrations against the government of General Suchinda
resulted in nearly 50 deaths in Bangkok and some damage to state property.
• 1996 - The Japanese management of a Sanyo factory near Bangkok is believed to
have antagonised its workforce by first proposing to relocate the plant
up-country, and then reducing the traditional New Year bonus. The workers set
fire to the factory causing damage estimated at US$ 12 million.
In 1994 there were no SRCC/MD claims and in 1995 only 16, costing a total of
THB 635,000 (US$ 25,500).
Loss Experience
Loss experience for Fire only Buildings policies is said to be good. Despite
the high rates charged, Contents policies are chronically loss-making, largely
because of Theft, and a number of insurers have withdrawn from the market.
Major Insurers and Reinsurers
There are no market share statistics for Simple business. However, it can be
safely assumed that the size of an insurer's Buildings portfolio is directly
related to the size of its associated bank's mortgage book. International
insurers such as IAG Thailand offer the most sophisticated Contents policies.
Distribution Channels
Buildings policies are almost entirely in the hands of the banks which direct
mortgage-related business to their associated insurers. Contents policies are
mainly sold through agents.
Industrial and Commercial
Introduction
The most significant feature of the industrial Fire market is the Industrial
All Risks policy, which is effectively tariff-exempt. Such policies may only be
issued on risks with (1) a property sum insured in excess of THB 300 million
(US$ 7.5 million) any one location, (2) incombustible construction, (3) a
minimum level of fire protections and (4) an average loss ratio of less than
10% over the preceding three years. Justification for non-tariff rating must be
made to the Insurance Commissioner on a case-by-case basis.
Large IAR policies tend to be rated in the international Facultative market and
fronted locally. Rates are falling in current soft market conditions. The
tariff itself under went a major revision which was unveiled in May 1999.
Due to the conflagration hazard in the older parts of Bangkok, the city has
been sub-divided for retention purposes into around 700 blocks separated by
streets. The 1992 Non-Life Insurance Act imposes an exposure limit of 10% of
capital funds any one block/any one risk for net account.
Scope of Cover
The market is polarised between smaller risks which are mainly insured against
Fire only and the larger risks which are covered under Industrial All Risks
policies. Outside the Industrial All Risks market it is estimated that only 5%
of Fire policies are extended to include Ancillary Perils. These comprise
Explosion, Aircraft, Riots, Strikes, Civil Commotion, Malicious Damage,
Windstorm, Flood, Water Damage, Impact, Smoke Damage, Spontaneous Combustion,
Earthquake and Electrical Derangement.
Industrial All Risks policies were originally based on a conventional All Risks
form with endorsements agreed with reinsurers. The Department of Insurance is
now issuing a Thai version of the London Market wording.
The market is extremely conservative in its approach to wordings, and still
issues separate Fire, Burglary and Liability policies for small businesses
rather than the Shopkeepers Combined packages which are the norm elsewhere.
Loss of Profits
Loss of Profits insurance is usually bought by multi-national firms only. Both
the UK and USA policy forms are in use. The normal maximum indemnity period is
12 months.
Major Risk Concentrations
Almost all of Thailand's manufacturing industry is located in and around
Bangkok. The largest individual Fire risks are in the Energy sector. The major
manufacturing risks include Siam Cement Co, the Thailand Tobacco Monopoly and
the car assembly plants. Central Bangkok contains a large number of hotels and
office blocks with sums insured in excess of 4 billion baht. High values are
increasingly found in the expanding hi-tec sector.
Loss Experience and Largest Losses
Thai Fire business has traditionally been extremely profitable, even in a year
like 1995 when there was a spate of department store losses coinciding with
severe flooding in Bangkok. Results have been better for Treaty than for
Facultative reinsurers because of the latter's more unbalanced exposure to
large individual losses like the Central Department Store.
The Fire loss ratio has to be interpreted with some caution because of the
uncertainty as to whether individual companies' Industrial All Risks policies
are accounted under their Fire or Accident statistics. In 1995, for example,
the Fire loss ratio jumped from 19.62% to 48.45% and the Accident loss ratio
from 36.46% to 64.94%, both accounts presumably reflecting the five major
department store Fire losses.
The main problem areas are the department stores. Despite the name, these are
really indoor markets, and the multiplicity of small traders makes it difficult
for management to impose satisfactory standards of housekeeping. Such risks
tend not to be sprinklered, and not even to have been surveyed until recently.
The five department store fires in 1995 cost the market an estimated THB 2.621
billion (US$ 105 million). A further three department store fires occurred in
1996. There has also been an unusual number of fires affecting sports shoe
manufacturers.
Reinsurance
Typical Fire Treaties are either combined Quota Share and Surplus or pure
Surplus. The larger companies have First and Second Surplus Treaties and either
a Surplus Open Cover or Fac Oblig. Retentions are normally protected by Risk
Excess policies. Compulsory cession of 5% is made to Thai Re. Given the
relatively limited local capacity, most large risks are heavily reinsured into
the international Facultative market.
Distribution Channels
Many insurers are part of conglomerates and therefore have a monopoly on
associated company business. Insurers which belong to bank groups automatically
receive all the bank's loan and mortgage-related business. Brokers therefore
tend to be limited to foreign multi-national accounts and the provision of
overseas support or other specialist services. Smaller commercial risks are the
preserve of the agent sector.
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