The government’s planned national disaster insurance scheme for residential properties is expected to add roughly 15 billion baht in new premiums for the general insurance industry, with 25 insurers initially qualifying to participate, says the Thai General Insurance Association (TGIA).
Somporn Suebthawilkul, president of TGIA, said the scheme will provide up to 75 billion baht in liability coverage for about 30 million households nationwide, with the government paying premiums averaging 500 baht per household.
The scheme could increase total general insurance premiums by more than 5% from the current 290-295 billion baht.
The plan is scheduled to take effect on Sept 16, while legal processes for establishing national disaster insurance funds could take at least two years.
Households do not have to pay premiums or register for the scheme. Eligibility is primarily based on household registration records. For homes without official registration, the government is expected to issue temporary registrations or otherwise arrange registration to ensure eligible households receive coverage.
Coverage applies to permanently occupied homes including condos and remains in force throughout the year. A home can make multiple claims if separate qualifying disasters occur.
However, compensation is only paid when a major disaster occurs and the government officially declares the affected area a public disaster zone. Ordinary flooding without such a declaration is not covered.
REINSURED OVERSEAS
Mr Somporn said the 15-billion-baht premium pool against 75 billion baht in potential liability makes reinsurance essential to prevent excessive risk from being concentrated among local insurers.
TGIA plans to coordinate with participating companies and arrange a collective reinsurance programme. Domestic insurers will retain a combined maximum of 5 billion baht, while the remaining 70 billion will be transferred to overseas reinsurers, he said.
The industry already negotiated with global reinsurers and secured reinsurance capacity for the full 75 billion baht, helped by favourable conditions in the global reinsurance market, noted Mr Somporn.
Two structures are being considered for Thai Reinsurance (Thai Re), with the first receiving the entire reinsurance programme before passing the risk overseas, or acting as a consortium manager, coordinating international reinsurance without taking the underlying risk itself.
The second approach avoids placing additional reserve and capital requirements on Thai Re that could eventually require a capital increase.
The reinsurance contracts are expected to use an event-limit structure. For example, if the first disaster causes 10 billion baht in losses, the remaining cover would fall to 65 billion baht. Insurers may then have to buy reinstatement covers to restore protection, potentially up to three times a year for the lowest layer of coverage.
TGIA does not expect to seek government assistance if losses are high, as it intends to manage risks from the outset. If major losses push up global reinsurance costs in the following year, the company will use the new costs to recalculate the premium and seek an adjustment from the government in the future, said Mr Somporn.
STRICT CRITERIA
TGIA and the Office of the Insurance Commission (OIC) are finalising participation criteria, with financial requirements expected to be stricter than those used in previous government-backed insurance programmes. Participating insurers are expected to have a capital adequacy ratio of 180-200%, compared with the statutory minimum of 140%, and must have reported net profits for at least two consecutive years.
Of the TGIA’s 47 member companies, 25 meet the preliminary criteria. The TGIA and OIC are finalising the details before formally inviting qualified insurers to state how much of the programme they wish to underwrite.
Mr Somporn said the broader general insurance market is showing signs of recovery, particularly in tourism-related businesses, marine insurance and infrastructure projects. Marine insurance has expanded the past three months in line with stronger exports, while motor insurance is benefiting from the rapid growth of electric and hybrid vehicles amid concerns over oil prices and geopolitical tensions.