The fallout from the Laos dam disaster that has killed at least 31 people is expected to hit the Singapore casualty market, where a $40mn excess of loss (XoL) liability policy has been placed, The Insurance Insider can reveal.
On 24 July, a saddle dam – the term for a barrage built to contain a reservoir, rather than to produce electricity – failed, causing 5 billion cubic metres of water to gush down the Xe Pian River valley in Laos.
Sources suggested the loss could cost carriers between $50mn and $70mn across multiple policies, but the exact size of the loss will depend heavily on how quickly the project can now be completed.
The dam is covered by at least two policies: a $40mn XoL liability programme placed in Singapore with as-yet unknown carriers; and a construction all-risks policy, placed by Aon Thailand on behalf of the dam’s builder the Xe-Pian Xe Namnoy Power Co (PNPC).
Sources have said that AIG leads the construction policy, but that the majority of the loss would instead fall on the casualty market.
This is because the major damage is associated with the flooding which followed the dam breach. The flooding contributed to the Mekong river bursting its banks in southern Laos, Vietnam and Cambodia.
Farmers and businesses in the region are expected to lobby for compensation. The Laotian government has already signed off on a compensation package, with liability insurers on the hook for any subsequent litigation.
It is also unclear as to whether PNPC also took out an environmental liability policy, which could also find itself on risk, following the incident.
AIG has a 25 percent line on the construction all-risks placement. Korean (re)insurers including Korean Re and Samsung Fire & Marine are also understood to be exposed to the construction loss.
The construction insurance policy incepted in 2013.
It is understood that the Korean (re)insurers facultatively reinsured part of their exposure to the dam in the Asian reinsurance market.
There is at least $800mn of property damage coverage on the AIG-led programme. However, very early estimates indicate that only around $10mn-$20mn of property damage coverage may be called into play, as the dam that broke was relatively small.
The construction policy also includes at least $200mn of delay-in-startup (DSU) coverage and $10mn of liability insurance.
DSU coverage is a type of business interruption insurance for power generation projects. DSU indemnifies a power station developer against a delay. Variable factors will include the price of electricity in Laos and Thailand next year, when the project was due to be finished.
The PNCP project is a network of seven dams around the Xe Namnoy reservoir.
The company is a joint venture between South Korean and Thai investors and the Laos government.
SK Engineering & Construction owns 26 percent of the project. Korea Western Power and Ratchaburi Electricity Generating each own a quarter of PNPC, while Laos Holding State Enterprise has a 24 percent stake.
According to the regional authorities, 130 people are still missing. The United Nations reports that 6,000 have been displaced by the deluge.
The humanitarian situation has been exacerbated by Tropical Storm Son-Tinh, which caused flooding in the area on 18 and 19 July, before the dam collapsed. In a further complication, the UN note that Attapeu Province, the region worst hit by floods from the collapsed dam, is “highly contaminated” with unexploded bombs from the Vietnam War.
Aon and AIG declined to comment.
PNPC, Korean Re and Samsung did not respond to requests for comment.