Insurance to cost more in areas hit by natural disasters

Jasmine Ng The Business Times AsiaOne 5 Feb 12;

SINGAPORE - Commercial insurance rates in Asia are expected to climb in regions affected by natural disasters following record insurance losses last year.

According to global insurance broker and risk adviser Marsh, Thailand alone is forecast to cost the insurance and reinsurance industry more than US$10 billion. The insurance market is reacting to the Thai flood disaster in September last year by severely restricting flood coverage on property insurance policies, Marsh says.

It anticipates rate increases of at least 20 per cent across the board on all property and business interruption programmes in Thailand with sub-limited flood cover or no flood cover, plus higher deductibles.

Underwriters are starting to label certain regions and countries as 'nat cat' (natural catastrophe) zones, whereas they were not previously considered as such, says Marsh.

Some are even pulling out of geographies or lines of business altogether to stabilise their portfolios and address profitability issues, Marsh adds.

Market conditions in Singapore are expected to remain soft and competitive as underwriters see Singapore as free from natural catastrophe exposures.

Most insurance premiums are on the decrease, except for companies that have regional insurance programmes with exposures to markets with catastrophe risks.

Marsh says financial lines will continue to enjoy abundant new capacity, keeping rates very competitive, with only crime insurance as an exception due to worsening loss trends. Construction-related insurance will also remain soft with market reductions averaging 10 per cent.

In China and Hong Kong, Marsh expects directors' and officers' liability for US-listed Chinese companies to be up 30 per cent on the back of a significant increase in securities class action lawsuits.

Hong Kong will also see substantial rate increases for companies that have exposure to markets with catastrophe risks.

Japan, which was severely hit by the March 11 earthquake and subsequent tsunami, will see an average 25 to 50 per cent increase for earthquake insurance. Insurers also tended not to provide earthquake capacity unless there was enough underwriting information available.

Rates in Malaysia have risen between 20 to 30 per cent in a number of insurance classes, including financial and property.

Premiums for medical malpractice cover will also be up by 20 to 30 per cent due to two recent high profile losses.

Despite this, Marsh says the continued influx of insurance capital into Asia, the demand for protection as the volume of construction projects grows, and the increasing general awareness of insurance and risk management are combining to lessen the direct effects in the primary insurance market.

'At best, rates are stabilising, with some areas such as natural catastrophe insurance increasing significantly while others are still enjoying capacity and competition,' Marsh said. It adds that this fragmented and choppy market is likely to continue throughout the first six months of 2012.


This article was first published in The Business Times.