One year after Thailand was submerged by deadly floods in one of the costliest natural disasters of all time, Viriyah Insurance has become a beacon of light, rallying the local insurance industry
Noah had to build an ark to escape the flooding after 40 days and nights of incessant rain. The Thai population endured over four times that last year, as rain pounded the region for 175 days during monsoon season. Of the country’s 77 provinces, 65 were left underwater.
No gigantic arks were spotted, but one might have come in handy to help relocate some of the 13.6 million people affected. Not only was the human cost monumental with over 800 people killed, but the World Bank estimates that the cost of damages caused by the floods reached $45.7bn making it the fourth costliest natural disaster ever, behind only the 2011 earthquake and tsunami in Japan, the 1995 Kobe earthquake, and Hurricane Katrina in 2005.
In the year since the deluge, the country has gotten back on its feet, mostly. The insurance industry, however, has suffered heavy losses associated with the damages and payouts. Lloyd’s of London estimates that insured losses are already over $15bn, and might yet reach $20bn. The market is in turmoil as insurers are forced to up their premiums or refuse new contracts in order to be able to cope with the large pay-outs it has been faced with since the waters receded.
But the floods have acted as dividing waters in some respects; the more organised and solid insurers emerged largely unscathed to help the country through the rough waters, while less resilient businesses were left floundering. One such case of success was Viriyah Insurance, an experienced insurer with 65 years of know-how. Despite events, the insurer managed to grow over seven percent last year, despite 25 of its 124 branches being underwater. The company distributed survival kits and bags to families affected by the floods, performed first aid and stepped up the efforts to remove customers’ vehicles from affected or dangerous areas, all of this in spite of many of its employees being flood victims themselves.
In an open letter to employees and shareholders, the Managing Director Suvaporn Thongthew expressed her satisfaction with the company’s performance last year in the face of such profound adversity: “With good planning and sound risk management, together with our past experience in dealing with major flood disasters, our revenue continued to grow,” she said.
Cream of the crop
The company has managed to retain its place as Thailand’s top non-life insurance company, retaining a market share of over 15 percent, a position that Viriyah has enjoyed for over 20 years. The company believes that this achievement comes from “expertise in the non-life insurance profession and its competitive edge in its service network that can provide excellent services to meet all customers’ requirements speedily; the ability that is the heart of the non-life insurance business,” according to a press statement.
The floods last year resulted in the Thai economy, one of the most stable in Southeast Asia, growing only 0.1 percent. The blow was twice as bitter as in 2010 when the economy expanded by a remarkable 7.8 percent, the fastest rate since 1995, and the non-life insurance market bared a lot of the brunt of the slowdown by having to deal with an enormous amount of claims within a relatively short period of time.
“The impact was strongly felt by insurance companies in terms of financial status and the ability to provide insurance,” according to a market analysis report by Viriyah Insurance, “nevertheless the industries growth rate was 11.87 percent, dropping only slightly from the previous year.”
The rather remarkable growth in the sector was due at least in part to a recent government scheme approved just weeks before the rains began, where the government agreed to subsidise crop and farm insurance. Those premiums had historically cost the insurance industry 4.96 million baht in claims between 1988 and 1991, against a mere THB1.45m in premiums, before being taken off insurers’ menus. But the new scheme ensures that the government contributes up to 30 percent of payouts to farm and crop premiums purchased from insurance providers participating in the scheme, including Viriyah Insurance. This ensured that the crop and farm insurance sector expanded 3,138.85 percent, helping countless farmers stay in business after the deadly floods.
Balancing risk and rewards
Despite these challenges, Viriyah is faring remarkably well. The company opened four new branches in 2011 and now operates 124 in 65 of Thailand’s 77 provinces. These branches serve over four million customers, and hold direct premiums worth over $684.94m.
Despite the floods and associated payouts, Viriyah still boasts a liquidity ratio of 344 percent. This robust operation is what has allowed the company to navigate through the tough times and with much success. Its efforts have earned Viriyah many accolades including the Insurance Company of the Year Award, Thailand by World Finance, the International Star for Leadership in Quality Award from the Business Initiative Directive (B.I.D.) and the Best Insurance Company award at the annual Thailand Motor Show, a trophy Viriyah has carried home eight years in a row, amongst others including the Prime Minster Road Safety Award and Thailand’s Most Admired Non-Life Insurance Brand.
But Viriyah is not one for resting on its laurels. It predicts that 2012 will see the continued rise of the non-life insurance sector, despite the issues facing the industry, namely the costly payouts still being claimed from last year’s disaster. The insurer attributes this to Thailand’s continued economic recovery amongst other favourable factors. The wake of the floods is also likely to have an invigorating effect on the number of non-policies being purchased as the population recognises the value of adequate insurance coverage. The industry is also likely to benefit from the return to capacity of the automotive manufacturers, many of which were left reeling from the floods and the halt in production by Japanese manufacturers after the earthquake and tsunami there.
Viriyah’s analysis expects the insurance industry in Thailand to grow “no less than 12 percent in 2012” because of a combination of all of these factors. But there are still challenges ahead, namely that the flooding has drastically reduced many insurance companies’ underwriting capacity, which is only made worse as people scramble to get more coverage. Some insurance industries have responded by increasing their flood-protection by as much as three times.
The changing tides
Because Thailand will always be at risk of flooding, Viriyah, other local insurance companies and the government are developing a traffic-light system to determine which areas are at most risk and might require additional or more complete coverage. These measures are partly a response to Standard & Poor’s reassessment of Thailand’s risk, noting that the losses accrued by insurance companies “have been so high that it has changed opinion on these markets being catastrophe-remote,” and that disasters are more likely to escalate to catastrophic proportions. So Viriyah is taking adequate precautions to ensure that its upstanding quality and service remains world-class, even in the face of future adversity.
The key development areas for Viriyah are to increase its market share of non-motor insurance. Today, motor insurance accounts for over 90 percent of the company’s direct premiums, and it is the insurer’s goal to reduce that ratio to 80 percent over the next five years, according to Natdhanai Mankosol, a Viriyah Insurance branch manager.
The company also hopes to expand its reach by branching out into other parts of Southeast Asia and Asia, before 2015. It is more than likely that, with its comprehensive experience in the non-life insurance market and its ability to make the best of difficult situations, Viriyah will achieve the same levels of success in its new endeavors as it has achieved thus far in its long and prosperous history.