Executive Briefings

Thai Floods, Other Disasters Have Some Insurance Companies Cutting Back on Business-Interruption Coverage

Half a year after the floods in Thailand began, companies in the technology sector have revealed that the impact has been bigger than first expected. The lasting effects could take months more to figure out, as some companies are still seeing supply-chain disruption and will continue to experience higher costs for some components of their products. And many companies, even outside the tech sector, may be affected the next time they renew insurance lines.

The floods "caused a much more severe disruption to our customers' supply chain than we initially expected," Molex CEO Martin Slark said. The company, which provides parts to telecommunications and automotive companies, lost  approximately $15 million in revenue during its most recent quarter, three times the amount forecast in the fall.

Outside the technology industry, reinsurance company RenaissanceRe announced that the flooding will result in a $45m loss for its fourth quarter. Any effect the disaster has on reinsurance companies will likely trickle down to commercial insurance buyers later this year, predicts John Eltham, head of North American business for brokerage Miller Insurance. Buyers may notice restrictions on coverage and demands for additional information about their supply chains.

In fact, the events in Thailand, on the heels of the Japanese earthquake and tsunami as well as a significant New Zealand earthquake, has insurance companies thinking about doing business differently. Some have cut back on their business-interruption coverage for natural disasters.

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Half a year after the floods in Thailand began, companies in the technology sector have revealed that the impact has been bigger than first expected. The lasting effects could take months more to figure out, as some companies are still seeing supply-chain disruption and will continue to experience higher costs for some components of their products. And many companies, even outside the tech sector, may be affected the next time they renew insurance lines.

The floods "caused a much more severe disruption to our customers' supply chain than we initially expected," Molex CEO Martin Slark said. The company, which provides parts to telecommunications and automotive companies, lost  approximately $15 million in revenue during its most recent quarter, three times the amount forecast in the fall.

Outside the technology industry, reinsurance company RenaissanceRe announced that the flooding will result in a $45m loss for its fourth quarter. Any effect the disaster has on reinsurance companies will likely trickle down to commercial insurance buyers later this year, predicts John Eltham, head of North American business for brokerage Miller Insurance. Buyers may notice restrictions on coverage and demands for additional information about their supply chains.

In fact, the events in Thailand, on the heels of the Japanese earthquake and tsunami as well as a significant New Zealand earthquake, has insurance companies thinking about doing business differently. Some have cut back on their business-interruption coverage for natural disasters.

Read Full Article