Policy Proposals Asia and Oceania Call for Enhancement of Post-Disaster Measures Following the Large-Scale Flooding in Thailand
Japan-Thailand Trade and Economic Committee
The large-scale flooding that occurred in Thailand last autumn affected corporations throughout the world by interrupting supply chains and causing other difficulties. The enormous impact on the Japanese economy reminded the nation's business community of the important role Thailand plays as a production base. Most companies have already restarted operations, but the increase in risk-related costs due to concerns about flood recurrence has become an issue.
Intraregional competition to attract foreign companies is accelerating today and, if Thailand is to continue to be considered an attractive production hub and further induce foreign direct investment, it is critical that the Thai government enhances measures to prevent the recurrence of flooding and increases its risk-financing support in readiness against recurrence. For these reasons, Keidanren calls on the Thai government to take the following measures:
1. Steady Implementation of Flood-Control Measures and Infrastructure Development
To ensure a stable business environment for companies, it is vital that Thailand takes radical measures to control flooding and improves both facility and system infrastructure to prevent and be prepared for flooding. Thailand is already taking many measures; however, it is reported that the development of flood-control embankments and drainage systems lags behind at some industrial estates and surrounding logistics infrastructure, as well as improvement of drainage function to unwater to downstream by extending canal and other infrastructure. It is, therefore, highly expected that the Thai government will accelerate such development. In addition, appropriate facilities to offer businesses accurate information on flooding and related damage in a speedy fashion in the event of recurrence must be established.
2. Enhancement of the Catastrophe Insurance Policy Scheme
In light of the huge insurance payouts required after last year's floods and subsequent trends in the reinsurance market to avoid recurrence risk, it has become difficult for nonlife insurance companies to continue providing flood insurance as they have in the past. As a short-term measure, it is important that the government supply risk-financing support for companies. In this regard, the Catastrophe Insurance Policy, or CIP, which the Thai government introduced in March 2012 is highly appreciated as a scheme where the government undertakes insurance that is unsustainable for the private sector. Enhancing the CIP scheme so that more companies can take advantage of it would increase its impact as a remedy for flood damage. This in turn would help improve Thailand's investment environment.
To strengthen the CIP scheme, the following specific measures are required:
(1) Prompt and Flexible Operation
Steady and prompt operation of the CIP framework at time of flooding is the foundation of this insurance scheme. To this end, the method of confirming the fulfillment of conditions for operation should be made transparent. Flexible payout is also important. For example, coverage of catastrophes where total claims of damage do not exceed 5 billion baht should be considered.
(2) Raising of Coverage Rate
Currently considerations are under way to raise coverage sublimit for the industrial sector from 30 percent to 50 percent of the sum insured. To enable companies to continue their operations in Thailand without worries, coverage should be further increased (to 100 percent of the sum insured) with the premise that financial sources are clarified. Moreover, payments should be based on re-procurement prices in principle.
(3) Clarification of Financial Sources
The National Catastrophe Insurance Fund, or NCIF, is the financial source behind the CIP scheme. The plan is that the Thai government will supply 50 billion baht and, of that, 20 billion baht will be allocated to reinsurance contracts so that the total amount is about 300 billion baht. From the perspective of raising the predictability of the payout of insurance benefits in the event of flooding and thereby promoting corporate enrollment in the insurance scheme, the following should be clearly disclosed:
- Companies with reinsurance contracts and their contract amounts; and
- Response in the event that total damage exceeds 300 billion baht.
(4) Flexible Setting of Insurance Premiums
CIP insurance premiums (currently 1.25 percent for the industrial sector) should be set flexibly depending on the level of risk at individual facilities.
(5) Publication of CIP Terms and Conditions in English
CIP terms and conditions set in July 2012 should be released in English.