COVID-19 Sparks Thai Insurance Policy Review

Updated: Aug 27

By Andrew Kemp









The global pandemic’s downwards pressure on the Thai economy has prompted businesses and insurers alike to review their insurance policies


Thai businesses and insurers have begun reviewing their insurance policies as they seek to weather the coronavirus (COVID-19) pandemic’s ongoing economic fallout.


This year will see the worst global recession since the Great Depression, according to the International Monetary Fund (IMF), which has warned that the world economy will shrink by 4.9% in 2020.


While Thailand has enjoyed unparalleled success in battling the spread of the virus – with not a single new case of community transmission having been reported in the past two months – the country’s heavy reliance on tourism and exports has left the economy exposed. The Bank of Thailand (BOT) said in July that this very dependency could see this year’s economic growth rank amongst the slowest in the Southeast Asian region.


With the hospitality industry struggling in the face of reduced spending by both foreign visitors and Thais themselves, businesses are looking to their insurers for answers. As they do so, understanding policy wording and whether contracts are ambiguous enough to successfully pursue a claim has quickly become a chief concern for both sides.


Economic fallout


BOT governor Veerathai Santiprabhob warned on July 20 that the country’s economic growth could trail that of regional peers following the collapse in tourism visits this year. Santiprabhob projected that just 8mn foreign visitors would arrive in 2020, down steeply from the record breaking 39.8mn that travelled in 2019.


With the hospitality industry struggling in the face of reduced spending by both foreign visitors and Thais themselves, businesses are looking to their insurers for answers.





While the Tourism Authority of Thailand’s (TAT) forecasts are not quite as bleak, at 14-16mn foreign visitors, the government body has warned that it will be years before the country enjoys visitor numbers and revenue similar to that seen last year. Foreign tourists spent THB1.93 trillion (US$61.34bn) in Thailand in 2019, accounting for 11% of the country’s gross domestic product (GDP).


“I have been working for TAT for more than 30 years, during which we have faced many crises; such as, SARS, Bird Flu, MERS, the tsunami, even our own political crises, but we have seen nothing like this,” TAT deputy governor for marketing communications Tanes Petsuwan said on July 1.


Aware of the challenges, the government has launched a THB22.4bn (US$712.1mn) tourism stimulus plan that will subsidise transportation and accommodation plans of around 2mn Thais. While it makes sense to encourage domestic travel, it does little for the country’s bigger problem of reduced international travel.


Given that governments around the world are battling second or third waves of COVID-19 cases, the outlook for the global international tourism market is anything but upbeat. The risks were further highlighted by the UK government’s decision in July to require all travellers from Spain to self-quarantine for two weeks, a move made with just a single day’s notice.


Ian Johnston, a Thailand-based partner at global law firm Kennedys, said this bleak backdrop had driven a growing number of clients to approach his firm to review their policy wordings – including property damage policies and policies with infectious diseases extensions.


Johnston said: “Insurers are naturally concerned to ensure they are acting fairly and in accordance with the laws of Thailand. As a result, they are examining their wordings in the present context to see what responsibilities they may have to insure.”


He added: “As is usually the case, the outcome may vary depending on the facts of each case allied with the relevant wordings in the policy.”


Between the lines


Among the business looking at their options are those that have already been forced to shut down, either from a government-mandated lockdown or during a deep clean following the presence of an infected individual. Thailand entered a state of emergency in late March, and began easing restrictions in May.



Insurers are naturally concerned to ensure they are acting fairly and in accordance with the laws of Thailand. As a result, they are examining their wordings in the present context to see what responsibilities they may have to insure.

Ian Johnston, partner, Kennedys




Successfully claiming business interruption insurance, however, is more often than not dependent on proving that there has been some form of damage to a property – with the latter often a clause in contracts that cover the former.


Proving that COVID-19 has inflicted damage to premises, however, is an incredibly challenging prospect.


The definition of damage has been boiled down over the course of a number of court cases – unrelated to viral pandemics – to mean a physical alteration that changes the property for the worse. COVID-19 does not alter inanimate objects at a molecular level, but lays on property surfaces.


Johnston said: “In a standard property damage policy providing business interruption cover there must be a ‘trigger’ of the property damage section before any losses of profit can become due. Some policy wordings have been modified to allow the presence of infectious diseases to be considered damage – often by the use of extensions or endorsements. However, given an extension often requires extra premium, the majority of policyholders with standard cover may find they do not benefit from such terms.”


Even in cases where business interruption claims do not rely on demonstrating property damage, the claimant still has to overcome several hurdles to prove their claim. They first need to prove that their property was infected with COVID-19, which then caused the business to close, which was itself the result of government regulations.


If the claimant is successful here, then insurers will also likely seek to reject claims on the grounds that a pandemic is unlike other natural disasters, which are limited by geography or time. The reality here is that there is no clear end date for the COVID-19 pandemic, with work still underway on a vaccine and the initial efficacy of said vaccine still in doubt.



Policies that contain more ambiguous wording and it is these cases where insurers may be more inclined to seek a court ruling.




Outlook


It will be clear cut in some insurance contracts whether or not a company has cover relating to COVID-19. For example, some policies allow for the presence of infectious diseases to be deemed as “damage”.


In this case, businesses arguing that the presence of COVID-19 particles meant that a property had to be decontaminated before it could be used again will likely have more success – particularly if the government has issued regulations to this effect.


However, there are policies that contain more ambiguous wording and it is these cases where insurers may be more inclined to seek a court ruling. While Thailand’s Office of Insurance Commission (OIC) has traditionally sided with the insured in cases where the wording is ambiguous, at the end of the day the courts have the final say in the matter.


Johnston noted: “Insurers tend to be proactive in applying cover where there is a ‘grey area’ in the wording. However, recovery under standard wordings – no matter who your insurers are – may be difficult if you are required to show ‘damage’.”


For those considering business interruption claims in such situations, it is vital that they familiarise themselves with the concept of damage and carefully analyse the evidence on a case-by-case basis to determine whether damage has actually occurred.


As cases are brought before the courts, it will be incredibly important for businesses and insurers alike not just to review existing contracts but also any future policy wording. The global regulatory environment is highly fluid, with governments around the world demonstrating that they can and will move the goalposts at a moment’s notice.


This article was written by Andrew Kemp for Conventus Law in association with Kennedys.

For further information on the insurance market in Thailand, please contact:

Ian Johnston, Partner, Kennedys ian.johnston@kennedyslaw.com

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