Thailand’s Kasikornbank, one of the largest commercial banks in the country, is introducing a range of parametric and weather index based insurance products for their mortgage customers. After the catastrophic flooding in Thailand last year there has been a renewed focus on providing affordable, simple insurance products to home and business owners, in order to give them the means to recover from disaster and to reduce the Thai governments burden after disaster strikes. The Thai insurance and reinsurance market has therefore had a lot of focus, as domestic insurers seek better ways to provide insurance against natural catastrophe and weather risks. The domestic insurers have also been looking for reinsurance cover which closely matches the profile of the risks they are underwriting and provides them with cover for those 1 in 100 year type catastrophe events. In both respects, parametric insurance and reinsurance products have gained in favour.
Kasikornbank’s new parametric insurance offering is an optional add-on to a home loan, which will provide up to 100,000 baht of coverage for disasters such as flooding, earthquakes and windstorms.
Backed by Muang Thai Insurance and the National Catastrophe Insurance Fund of Thailand, the product will offer cover for damage to residential assets caused by events which are declared by the Thai government as a catastrophe event. So that is one trigger, when an event is deemed a catastrophe, but the product also has true parametric trigger characteristics as well.
For earthquakes the measurement at the epicenter must be 7 on the Richter scale or higher. For windstorm events a windspeed of 120 kilometers per hour or higher must be recorded. For flooding there is a sliding payment scale, 30,000 Baht for 30-centimeter flooding, 50,000 Baht for 50-centimeter flooding, 75,000 Baht for 75-centimeter flooding and 100,000 Baht for 100-centimeter flooding. The cost of this coverage is 537.14 Baht per year, which is approximately $ 17.
The bank has also launched an optional add-on which can be purchased as well, which extends the coverage to other natural disasters such as tsunami, hail, volcanic eruption as well as the same perils as the other policy. This add-on covers events not officially deemed a catastrophe and so a normal claims process is required.
The idea of this product is to cover mortgage customers against the increasing frequency and severity of natural disasters in Thailand. It’s another example of parametric insurance mechanisms allowing catastrophe insurance coverage to be more widely adopted. These products are only possible while reinsurance cover is available for these risks and we understand that some Thai insurers have now got a parametric layer within their reinsurance program to match the risk transfer needs of these types of product.