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Construction and Engineering Insurance
Construction and Erection All Risks
Introduction
In 1999 construction accounted for 6% of Gross Domestic Product.
Private sector construction has recently declined, largely because of
over-supply of speculative hotel and office accommodation in Bangkok. The
previously buoyant market for public infrastructure projects was thrown into
doubt in January 1997 when the Government cancelled or postponed some major
developments in an effort to reduce the Budget deficit.
The CAR insurance market tends to be polarised between international companies
which have the capacity and expertise to retain quite large projects locally,
and the domestic insurers which tend to rely excessively on the international
Facultative market. The international reinsurance ratio is higher for CAR than
for any other class.
Scope of Cover
The normal Contractors All Risks wording is the Munich Re form. (View IAG
Thailand Standard Wording)
Domestic contractors do not buy Contractors All Risks insurance for house
building or other small projects, and will only buy Third Party cover if piling
is involved. The Third Party indemnity limit depends upon the identity of the
bank funding the project: an international bank might require a limit of up to
US$ 20 million (dependant on the type and size of contract), whilst local banks
tend to accept the US$ 1 million or US$ 2 million limits which the
international brokers normally include within the project insurance package.
Loss History
The most persistent problem is piling, particularly in the Bangkok
area. Bangkok has grown up on what was originally marshland, and the new 40 to
50 story hotels, office blocks and condominiums require piles sunk to a depth
of up to 60 meters. Claims have arisen for subsidence and vibration damage to
surrounding property, particularly where new piles have been driven too close
to existing ones. Piling experience is said to have improved since policy
wordings were endorsed to exclude pile deviation claims.
There is seasonal exposure to flooding, but this has not produced a serious
loss experience. Tower crane collapses are a regular occurrence with an average
of two such claims a year.
Distribution Channels
The placing of Construction insurance is normally determined by the insurance
connections of the funding institutions. Coinsurance amongst the domestic
companies only occurs if a project is being funded by a syndicate of banks,
each of which will insist on a share for its associated insurer. Japanese
banks, for example, direct shares to Mitsui Marine and Sumitomo, which
presumably explains why the former was the fourth largest CAR insurer in 1994.
The leading specialist brokers are Aon and Marsh.
Major Projects
Potentially the largest area of development is Bangkok's Metropolitan Rapid
Transit system. This consists of a combination of underground railways,
monorails and elevated expressways. Lack of co-ordination and funding
difficulties have led to delays and cancellations, but the following elements
of the plan are either committed or under construction:
| Underground System Phase I
|
- US$ 1.4 billion |
| Underground System Phase II |
- US$ 1.6 billion |
| Bangkok Transit System |
- US$ 1.7 billion |
| Bangkok Expressway and Rapid Transit Scheme (BERTS) |
- US$ 3.2 billion
|
Other major schemes include a massive up-grade of Bangkok's waste water system,
expansion of the telecommunications infrastructure and the construction of
privately-funded power generation capacity.
Major Contractors
There are about 4,500 contractors, mainly small scale Thai-owned
enterprises. Major contractors are mainly JV companies.
Machinery Breakdown
Introduction
Machinery Breakdown is quite commonly purchased in the private sector, though
usually at the insistence of the insured's bank. Policies frequently include
Business Interruption in order to secure loan interest payments.
Thailand is privatising its power generation industry, and there are increasing
numbers of IPPs (Independent Power Projects) and SPPs (Small Power Projects),
all of which have Machinery Breakdown insurance.
All Machinery Breakdown is rated internationally and placed in the Facultative
market.
Scope of Cover
Machinery Breakdown risks are written on international wordings
determined by reinsurers.
Statutory Inspection Requirements
There is no legislation requiring boilers, pressure vessels or lifts
to be inspected.
Locally Manufactured Equipment
Heavy machinery, particularly power generation equipment, is not
manufactured locally, and lead times for replacement plant are often six months
and more.
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