03 Oct 2013
October 3, 2013

Flood Risks in Asia

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Damaged cars in Honda Plant in Thailand

Having in place an insurance against flood risks in Asia is not always on top of the mind of businesses. However, images of damaged cars at manufacturer’s plants due to the flood in Thailand in 2012 are still fresh in risk managers’ eyes. The loss for the insurance industry was estimated around US$20 billion for this single event and the global supply chain of some of the world’s biggest manufacturers like Toyota and Honda was disrupted for months.This natural catastrophe in Thailand will most likely happen again in the coming years as Asia’s flood risks is considered as one of the highest in the world, according to Swiss Re’s report published in early 2013.

Major cities most at risk in Asia are Tokyo, Manila and Pearl River Delta in China’s Guangdong province. Although no major flood was recorded over the past decade, it is likely that a 50 or 100-year flood will happen. This will in turn have a significant negative impact on the factories there as they produce one third of China’s export. Pearl River Delta West is a low-lying area with over 100 km inland and 40% of the land is only 2 meters above sea level. Factories there were built without proper flood risks assessment and the Chinese government has not published any map of major flood area.

Flood risks in China are currently being covered under standard property all risks without upper claim limits, at a rate, that is estimated to be 20% to 30% lower than other Asian countries. Chinese insurance companies face a major risk exposure with floods that will surprise them when it happens. Having said that, rates are not likely to increase soon as competition remains stiff in China, until a major loss happens.

Other parts of Asia face the same risks as rapid economic development in the region has pushed for constructions of many industrial parks near coastal areas, and without proper study of long term historical date of floods and storms. Among Asian countries listed in top 10 flood risks of Swiss Re’s report, Malaysia ranked 5, Indonesia 7 and India 10.

After Thailand’s worst flood in five decades, insurance rates there have doubled or tripled and coverage for flood risks has reduced. Solutions remain limited, as it is difficult to relocate factories. Some manufacturers like Toshiba has shifted their machineries to the second floor and has set up contingency plans to avoid major disruption to their supply chain should similar events happen again. However, there is no easy long-term solution and awareness of natural disaster’s potential loss remains low amongst financial controllers, insurance companies and governments.

 

 

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