Insurers face unexpected increase in business interruption claims after Japanese companies relocate operations to Thailand: law firm

Insurers of Japanese earthquake losses are facing unexpected increases in claims from manufacturers who moved production and/or sourcing of supplies to Thailand, according to law firm RPC (Reynolds Porter Chamberlain LLP).
“Many Japanese companies, particularly in the automotive and electronics sectors, moved production to Thailand, and/or found alternative component suppliers in Thailand after the Thoku earthquake to minimize their business interruption losses,” RPC notes in analysis posted on its Web site. “However, the recent flooding may lead to a substantial increase in insurers’ liability for those claims.”
With business interruption claims, an insured business must mitigate its losses in order to recover under its insurance. Many Japanese manufacturers moved production from earthquake and tsunami-hit regions of Japan to Thailand in order to mitigate those losses.
“It is very unusual for two large manufacturing centres to be hit separately by such large natural disasters in such a short space of time,” Daniel Saville, legal director in reinsurance and corporate insurance at RPC, says. “The problem for insurers who provide business interruption cover to Japanese manufacturers is that they have to cover the losses stemming from the Thai flooding because so many businesses moved some or all of their supply chain there.
“Moving production from Japan to Thailand was a ‘Plan B’. The question now is whether those businesses have a ‘Plan C’. The insurance market will be working with insureds to implement cost effective contingency plans as soon as possible.”