The expected cost to insurers for the losses in Thailand is estimated to be at least $14 billion, and could go higher. Given the relatively low insurance penetration rate in Thailand, the economic losses are likely to be significantly greater than the insured losses. The floods in the past months have caused widespread disruption in 61 of the country’s 77provinces. Factories affected have disrupted manufacturing supply chains, in areas such as technology, auto assembly and small machinery and equipment. The central business zone in Bangkok has become the latest area to be evacuated.

On top of industrial losses, the agricultural sector has been devastated by the floods: one quarter of the rice production has been lost. Thailand is the world's largest exporter of rice. Therefore, rice prices are likely to move up in tandem with other agricultural commodities following stronger supply/demand ratios.

The overall result of the Thai disruption underlines how Asia has become central to multinational supply chains. The political risk disruption of the "red shirt" movement in Bangkok last year did not have the same impact as the recent floods but served to remember companies that not all risks can be modeled with 99 percent certainty of the outcome. Business interruption, either direct or contingent, can occur thousand of kilometres away from the epicentre where the peril is playing out. Contingency plans need to include growing uncertainty around natural catastrophes following climate change. When rethinking how supply chains are designed and optimized for the needs of different clients and suppliers, it is paramount that companies re-evaluate the concept of clustering together and cooperation with other stakeholders in times of need to move production to alternate sites.

Marsh offers a range of tools to help organizations better understand and plan for potential supply chain bottlenecks:

Marsh Risk Consulting (MRC)

Business continuity planning provides a necessary framework to improve overall resiliencies against disaster based interruptions or supply chain disruptions and is one part - along with insurance - of a multi-pronged approach to proactively managing operational (business) interruptions. In the event supply chain disruptions, business continuity plans provide an effective response to safeguard the goals, objectives, brand, reputation and ultimately, the bottom line of an organization. By having an appropriate methodology to identify and manage potential supply chain disruptions and associated inter-dependencies, organizations are able to:

• identify and map those key operations and components, by either location, profit flow or product line;

• have an end-to-end view of its supply chain identifying demand, supplier, and operational bottlenecks and potential risks; and

• understand the financial impact of failures.

The results serve to accurately determine both the limits and amounts of business interruption and extra expense insurance coverage needed and gain better insight into their current risk management framework including necessary business continuity strategies. Such insights help organizations develop a more resilient and agile supply chain than its competitors which can translate into increased market share, brand loyalty, and enhanced shareholder value in the face of a disruption.

Trade Disruption Insurance

Specific named supplier-coverage for direct and contingent business interruption arising from natural catastrophes, credit default and/or political risk. Organizations can choose to cover all three main perils or just one or two, depending on their familiarity with their suppliers’ operations and geographic locations.

Maplecroft Risk Maps

These risk maps available at the Maplecroft website (www.maplecroft.com) for all Marsh clients show geographic areas where specific perils (from political violence to floods) have historically concentrated and where the risk of re-occurrence is greatest.