Disasters fuel demand for new insurance

Pim never considered buying life insurance until recently. The 32-year-old office worker had always believed she led a life of low risk.

But last month the ground 60 floors below her was jolted by the earthquake in China's Sichuan province. The Empire Tower on Bangkok's Sathorn Road began to sway and she found herself running for her life.

"I still remember vividly the fear that gripped me," Pim recalled. "It's not the first time I have felt an earthquake while in a high-rise, but the one three weeks ago was so severe. Natural disasters seem to be coming more frequently. So when an insurance agent approached me again last week, I didn't kick him out."

For the insurance industry, the tremor, widely felt in Bangkok's downtown business area, served as another reminder of the increasing risk from natural disasters. While most of Thailand rests far away from major fault lines, such events help put the uncertainty of nature's forces into perspective.

Coming on the heels of Cyclone Nargis, which was much closer to home and escalated the growing uneasiness about the role of climate change in such events, the quake has brought a lot of new business, said American International Assurance's senior sales executive Suwat Asawapaopong.

"My company comes up with new promotions with lower premiums so that hedging for the future does not become today's burden for customers," Suwat said.

"For example, the premium for Bt1 million of coverage was reduced from Bt4,500 to Bt3,800 per annum. Since the 2004 tsunami, I think Thais have become more aware of how uncertain the future can be."

Globally, the insurance industry was among the first and swiftest to reference scientific studies on global warming within their business plans.

German insurer Allianz Group notes that the latest assessment of the Intergovernmental Panel on Climate Change signals tremendous business potential, due to the anticipated escalation in natural catastrophes and damage associated with a warmer atmosphere.

"The insurance industry has always been a kind of early-warning system for society," said Armin Sandhoevel, CEO of Allianz Climate Solutions. "We think that climate change is going to be a major risk for humankind and also for our industry if we do not act."

Visiting Bangkok last week, Sandhoevel presented a report called "Hedging climate change: how insurers can manage the risk of increasing natural catastrophes".

It states: "The number of natural catastrophes since the 1970s … is clearly upwards. The vast majority are weather-related. This suggests there is a connection between the increase in natural catastrophes and the slow but constantly rising increases in global temperatures as a consequence of climate change."

The report also warns that the costs of climate change are unevenly distributed geographically. Developing countries are generally located in warmer regions and are highly reliant on agriculture, which is the sector most vulnerable to climate change. Countries with low incomes will have difficulty investing in adaptation strategies.

The Thai insurance industry is certainly on the alert, said Sujin Wanglee, chairman of the General Insurance Association.

"We are the risk carriers, so we have to pay close attention to increasing climate variability. From our assessment of the situation in Thailand, floods are our major concern."

Results from a Thai climate simulation concluded last year verified Sujin's assessment, said START modeller Suppakorn Chinvanno. According to the model, almost every region can expect greater rainfall from now until the end of the century, increasing the risk of mudslides and flash floods, especially in mountainous provinces.

"Risk management amid climate variability is certainly the clever thing to do," Suppakorn advised.

"The issue of insurance against future uncertainties has even become a topic during inter-governmental talks. The insurance industry has an important role to play, and among many things it should do is to come up with innovative mechanisms to help people and developing countries better cope with risks."