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Thailand is blessed with one of South-East Asia’s most developed economies and benefits from strong inward investment.[1] But political instability has become a key business risk factor in recent years following the coup d’état in 2014 and the more recent political demonstrations during 2020 and 2021. Further political instability cannot be ruled out.
Corporates can put political risk and business interruption insurance in place to address these risks. For those with insurance coverage, the insurance industry has performed generally well during the past 12 months. As in other countries, insurers have reviewed the standard wordings for infectious diseases clauses, as well as the various other clauses that might be deemed to cover pandemic risks. But claims have been largely paid out. However, a more recent rise in COVID-19 cases and the longer-term impact of the pandemic could see scope for higher pay-outs in the future, potentially fuelling litigation and increases in premiums. Moreover, the claims processes are subject to criticism for being slow and there is fear that some companies will collapse. Adding fuel to these fears, the Office of Insurance Commission recently ordered Asia Insurance to temporarily stop signing new customers after a probe suggested the company has insufficient liquidity for claim payments and a lower capital adequacy ratio than the legal requirement.[2]
Historically, there have been coverage problems resulting from whether political demonstrations are defined as acts of civil unrest or acts of terrorism; in line with international practice, most policies do not specifically cover terrorism. For this reason, risk management is not simply a matter of having insurance coverage in place. Businesses need to become operationally agile by building flexibility into their business plans, for example, having ‘emergency’ business premises – if possible - in case their usual premises are affected by business interruptions (and accepting that getting around Bangkok is notoriously difficult at the best of times, let alone during street demonstrations).
Honing this kind of agility has been equally valuable in helping businesses to navigate their way through other business challenges, such as the remote working requirements experienced during the COVID-19 pandemic.
The pandemic has resulted in major business and economic impacts. Thailand’s economy is heavily reliant on foreign tourists who have not been able to undertake non-essential travel during the pandemic. Unemployment has risen though remains low by international standards. However, those in work have seen their incomes take a hit, particularly for workers in key tourist destinations. This is despite the introduction of the “We Travel Together” stimulus package which looked to fill the gap left by foreign tourists, with a domestic audience. Lost incomes and lost profits will take time to make good.
GDP fell by over 6% during 2020[3] with shop fronts shuttered up. As in other countries, it has been the small and medium sized businesses that have been hit hardest. The government has intervened to put support measures in place to encourage tourism, including subsidies. Even so, we can expect to see some economic scarring because of the pandemic. The large hotel groups have been able to refinance and scale back their operations meaning that they will be able to reopen and recover once the global pandemic has unlocked.[4] But within Thailand’s hospitality sector there are many small and medium sized businesses; business protection and alternative financing arrangements are less accessible, and this sector has experienced many business failures. These businesses simply won’t exist when the recovery comes. As a business community, we could be living with the pandemic fallout for some time yet.
The perfect storm of a pandemic and political unrest demonstrates the continued value of business continuity planning as the severity and frequency of major business disruptions is set to increase, not just in Thailand, but around the world.
Insurance and reinsurance