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Development in Practice

ISSN: 0961-4524 (Print) 1364-9213 (Online) Journal homepage: http://www.tandfonline.com/loi/cdip20

Flood risk reduction through insurance for SMEs in

Pathumthani province, Thailand

Shubham Pathak & Mokbul Morshed Ahmad

To cite this article: Shubham Pathak & Mokbul Morshed Ahmad (2018) Flood risk reduction
through insurance for SMEs in Pathumthani province, Thailand, Development in Practice, 28:2,

To link to this article: https://doi.org/10.1080/09614524.2018.1425375

Published online: 20 Feb 2018.

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VOL. 28, NO. 2, 303–310

Flood risk reduction through insurance for SMEs in Pathumthani

province, Thailand
Shubham Pathak and Mokbul Morshed Ahmad


Insurance could be an effective mechanism to assist small and medium Received 27 July 2016
enterprises mitigate unforeseen flood disasters. This article analyses Accepted 24 October 2017
insurance as an option for manufacturing SMEs to adopt to aid recovery
from damage caused by floods, using data from flood-affected SMEs in Globalisation (inc. trade;
Pathumthani province, Thailand, in 2011. The study findings suggest private sector); Environment
that inaccurate risk perception, reluctance of SMEs to utilise insurance (built and natural); South Asia
due to high premium rates, and poor adoption of flood mitigation
strategies resulted in longer recovery periods following the 2011 floods.

L’assurance peut être un mécanisme efficace d’aide aux petites et

moyennes entreprises (PME) pour atténuer les effets désastreux et
imprévus des inondations. Cet article examine l’option représentée par
une assurance pour les PME manufacturières dans l’aide au
rétablissement, suite à des dégâts provoqués par des inondations, en
s’appuyant sur des données provenant de PME affectées par des
inondations dans la province thaïlandaise de Pathumthani en 2011. Les
résultats de l’enquête suggèrent que la perception inexacte des risques,
la réticence des PME à souscrire une assurance en raison du prix élevé
des primes de risque et le faible niveau d’adoption de stratégies
d’atténuation des inondations ont eu pour conséquence de plus longues
périodes de rétablissement à la suite des inondations de 2011.

Los seguros pueden ser un mecanismo efectivo para auxiliar a pequeñas y

medianas empresas a mitigar los efectos de desastres causados por
inundaciones imprevistas. A partir de la información surgida de P yME
afectadas por inundaciones en la provincia de Pathumthani, Tailandia en
2011, el presente artículo analiza los seguros como una opción de apoyo
para que las P yME manufactureras se recuperen de los daños causados
por inundaciones. El estudio estableció que, tras las inundaciones de
2011, tuvieron lugar periodos de recuperación más prolongados, debido
a la existencia de percepciones imprecisas en torno a los riesgos
implicados, la reticencia de las P yME a asegurarse por el elevado costo
de las primas y la inadecuada adopción de estrategias de mitigación de

Floods are among the most common and recurring natural disasters in the world, affecting every
sector of countries’ economies. It is essential for economies to recover faster from these losses to
attain resilience and sustainability. Increasing threats from climate change and rising sea levels
heighten the vulnerability of coastal as well as inland economic structures of all economies (Surminski
and Eldridge 2015).

CONTACT Shubham Pathak shubhampathak@gmail.com

© 2018 Informa UK Limited, trading as Taylor & Francis Group

Flood disaster is an issue for over almost half of the land mass of the world, posing a hazard to over
190 million people and affecting 70 million people per year (UNISDR 2011). Research has found that
these figures are likely to rise in the near future with the effects of climate change (Trenberth 2011). In
the context of increasing flood risk, this study focuses on small and medium enterprises (SMEs) in the
flood-affected province of Pathumthani during the Thailand floods of 2011. The severe effect on the
SMEs resulted in a recovery period that extended to over 12 months for some of the companies.
SMEs in Thailand have been defined on the basis of capital invested or number of employees –
being those enterprises which employ fewer than 200 employees, have investment capital of less
than 100 million baht, and fixed assets of less than 100 million baht (OSMEP 2014). SMEs are
called boresat in the native Thai language and are the second largest employer in the country,
after agriculture (NSO 2012).
SMEs in Thailand exist across three primary sectors- production/manufacturing, trading, and
service sectors- with the majority in the manufacturing sector (Provincial Commercial Office 2013).
This led to the choice of these enterprises as the focus of this study, as the flood impact on these
firms affects the supply chain and export/import of the Thai economy as a whole (Figure 1).
According to Lee, Chiu, and Chang (2013), it is essential to consider the status of an economy as
developed or developing prior to choosing risk reduction tools and methods. Developing countries
lack risk transfer and insurance mechanisms in comparison to developed economies such as the
United Kingdom and the United States (Botzen and van den Bergh 2008). Thailand, an upper-
middle income country, is vulnerable to floods on a yearly basis. GDP fluctuations would result in
the slowing down of the development process across the economy.
Previous studies have demonstrated the use of insurance as shock absorber for the economy from
unforeseen natural hazards (Schich 2009). SMEs require comprehensive business continuity planning
to recover faster from disaster events (Kaushalya, Karunasena, and Amarathunga 2014). In the wake of
increasing devastating impacts of natural disasters, flood insurance acts to mitigate the impacts, and
ensures sustained business activities even after being severely affected by a disaster.

Disaster risk
Many disasters strike without warning and affect business enterprises. However, flooding is a slow
onset disaster which provides time to be prepared for the aftermath. SMEs need to adopt strategies

Figure 1. SMEs in Thailand, by sector. Source: Industries 2014; OSMEP 2014.


to cope with floods, especially among the income-generating aspects of the enterprise, continuation
of essential business activities, disaster management and recovery planning to recover faster, achiev-
ing normalcy of business activities to avoid closure by the next fiscal year (Hardly, Roper, and Kenedy
The industrial sector in Thailand was severely affected by the floods in the country in 2011. The
total economic damage to the Thai economy was 1.4 trillion Thai baht (US$45.7 billion), of which
90% of the impact was borne by the private business sector (World Bank 2012).
Studies found that a lack of financial resources available to SMEs, and damage to production,
stored products, and sales contributed to business disruption and acute pressure on SMEs to
survive in the marketplace. The risk perception also contributed towards the lack of adoption by
SMEs of structural and non-structural measures to reduce flood vulnerabilities.

Insurance is an essential tool in overcoming business losses from various disasters and formulates the
future prospects of the SME. Insurance involves a risk transfer mechanism from the sudden disaster
event and shares the damages among the insured and the insurer (Atmanand 2003).
Insurance is the risk transfer tool adopted by individuals, business entities, and organisations, and
has been regarded as an important tool for economic development and growth (Lee, Chiu, and
Chang 2013). Insurance has evolved as a reliable technique to overcome future hazards in monetary
terms (Zou and Adams 2006). Insurance usually insures against an accident or mishap in the life of the
insured; however, there is a lack of flood-focused insurance in most developing economies. The per-
ception of future risk and attitudes towards the importance of attaining insurance policies also varies
and is lower in developing economies. The utilisation of insurance as a risk reduction tool would
enhance the climate sustainability and resilience of SMEs (Surminski and Eldridge 2015; Rauf et al.
2017). However, flood insurance in several middle- and lower-income countries has been underuti-
lised (Abbas et al. 2015).
This study focuses on the inclusion of insurance as a tool for risk transfer from SMEs towards
insurers, to curtail huge losses incurred by floods by the less prepared SMEs in Pathumthani province.
The 2011 flood brought about a decrease of US$17 billion towards the insurance premium income,
highlighting the large decline in the insurance sector as well (World Bank 2012).

Disaster risk reduction through flood insurance

Disaster risk prevails in almost all parts of the world. Disaster risk reduction is essential to cope better
and faster from any calamitic event. The non-structural measures to become resilient to such disas-
ters include insurance, business continuity planning, business recovery strategies, and accurate risk
Insurance has been widely accepted as a tool to reduce the burden on the private as well as
public sector, enhancing resilience towards disaster risk and climate change adaptation.
However, the actual implementation of such tools is limited and relies on the accuracy of risk per-
ception of the vulnerable entity. Both the private and public sectors need to adequately analyse the
complexities of disaster risk and insurance viability prior to adopting insurance as a tool for disaster
risk reduction.
Insurance provides for disaster risk reduction as well as the security for further business expansion
as disaster losses are balanced with the insurer’s pay-out (Channak 2015). Disaster risk reduction and
reaching the stage of normalcy involves huge financial investments towards disaster recovery pro-
cesses. Research has shown that insurance is among the most effective tools to reduce losses and
provide financial stability even with the premium amounts being paid before the disaster (Kron
2015). In the absence of insurance, SMEs find it more difficult to cope, as they revert to personal
savings or loans from friends or family, which indebt them for a longer term.

This article focuses on identifying the association between insurance with faster disaster recovery,
awareness of actual flood risk among SMEs, and adoption of flood insurance as mitigation in order
to reduce the vulnerability of SMEs to the recurring floods in Thailand.
The study included using the survey method, which is applicable to studying and analysing strat-
egies utilised during a past disaster event. Data were analysed using the content analysis method.
The study was carried out in seven districts of Pathumthan province, Thailand. The sample was
based on SMEs in Pathumthani affected by the 2011 floods. Of a total of 401 SMEs (OSMEP 2014)
in the province, a sample of 200 companies was selected. These were selected through random pur-
posive sampling and data were collected in 2014 and 2015. The data collection involved a survey
questionnaire given to all 200 SMEs, key informant interviews, and focus group discussions.
The respondents were 70.5% male and 29.5% female, and in terms of age, 20% were 21–30 years
old, 35.5% 31–40 years old, and 44.5% over 40 years old. Around 66% of respondents were graduates,
11% postgraduates, and 23% below graduation level.
Twenty key informant interviews were undertaken with government officers, emergency response
team personnel, insurance company officials, and managers from NGOs. The interviews provided a
means to cross-check respondent responses and information. The focus group discussions involved
officials from Pathumthani police headquarters, Pathumthani electricity department, the commercial
office of Pathumthani, head post office of Pathumthani, district administrative officers, Public Electri-
city Authority (PEA), Pathumthani district administration, fire department, insurance officials, two SME
owners, and three SME employed managers as representatives of SMEs.

Findings and discussions

The findings are focused on flood disaster risk perception, insurance utilisation, and inclusion of insur-
ance among the disaster risk reduction planning and policies. The problems and issues faced by SMEs
in utilising insurance as a major tool in disaster risk reduction and experiences during the 2011 floods
event in Pathumthani province are also considered.

SMEs’ perceptions towards flood risk

SMEs in Thailand are unaware of their exposure towards flood hazard (Pathak and Morshed Ahmad
2016). SMEs’ financial and managerial decisions are more focused upon routine business activities,
with flood risk considered a non-immediate threat. Therefore, there is a lack of focus on disaster man-
agement and recovery strategies.
Table 1 shows the flood risk perception of SMEs in the study area before and after the 2011 floods.
We found that even after the severe impacts of the 2011 floods, more than 58% of SMEs were still
unaware of the flood risks to their enterprise. While there was an increase of 18.5% in flood risk per-
ception following the 2011 floods, there is an urgent need for further risk awareness information
As well as these factors, absence of insurance is one of the major factors affecting the recovery
time for SMEs. SMEs were reluctant to acknowledge the flood risks, and have a laidback attitude

Table 1. Flood risk perception of the SMEs in the study area.

Flood risk Response Frequency %
Before 2011 floods Yes 47 23.5
No 153 76.5
After 2011 floods Yes 84 42
No 116 58
Source: Field survey.

towards future flood risks. Respondents suggested that it would be beneficial for them to avoid risk
reduction measures and concentrate on business expansion. One respondent from a severely
affected noodle company added:
“There is no flood risk in our area. We did get flooded in 2011 but I think the government will take care of it in case
it happens in future. Similarly, we don’t need insurance also, we will cross the bridge when we reach there!”

Such attitudes towards flood risk need to be revisited at both governmental and individual level.
Higher awareness of flood insurance, and compulsory flood insurance with reduced premium
rates would enhance the adoption of flood insurance among vulnerable SMEs. Flood disaster risk
is prevalent in the area, but the perception is that SMEs are safe from flood risk. Neglecting the
risk reduces the adoption of coping mechanisms as well as enhancing vulnerability.

Thai SMEs’ perception towards flood insurance

Thai SMEs understand that government has a crucial role in disaster recovery. Government control of
disaster management, aid and assistance programmes forms the foundation of faster disaster recov-
ery and enables the economy to bounce back to normalcy.
Table 2 depicts the responses of the flood-affected SMEs in the study area regarding the adoption
of insurance policies before and after 2011. SMEs were reluctant to use insurance as a flood risk
reduction tool, irrespective of the level of damage by floods. More than half (56.5%) of the sample
SMEs were still not insured for the effects of floods. However, the insurance adoption has increased
by 10.5% among SMEs after the 2011 floods.
SME management tends to ignore disaster recovery as it is a human trait to focus on the positive
side of situations (Slater 2015). The study reveals a lack of emphasis by the government on pre-dis-
aster mitigation, inclusion of NGOs, disaster management and recovery planning, and adopting insur-
ance as a necessary requirement to curtail flood losses. Disaster mitigation and disaster recovery
strategies adopted at the SME level would enhance their resilience to future flood events and
ensure faster disaster recovery. A key informant from an NGO working for SMEs in the province
“The government should include us in the disaster management infrastructure. We have the human resources
and volunteers who are willing to assist in the flood times. A proper pre-disaster management planning could
enable the SMEs to reduce losses and cope faster from floods than was the case in 2011.”

The business continuity planning and disaster risk management planning proved to be effective in
the disaster scenario. However, this is only true in cases of SMEs who are aware of their flood risk
and vulnerability before the disaster strikes. Disruption in the business activities, damage to the enter-
prise, and risk of losing future sales and market share together contribute to the need for SME to get
insured. Moreover, SMEs that have encountered floods in the past credited their experiences as an
important factor in adopting flood insurance as a flood recovery tool. One SME owner and
manager stated:
“We were not affected by the 2011 floods at all. The planning was in place and we carried out business activities
from our Bangkok branch. The factory was secured with insurance, disaster management plans and measures
such as boats, flood dykes around the premises and 24/7 security guards on duty during the flood months.”

Table 2. Thai SMEs’ perception towards flood insurance.

Insurance Response Frequency %
Before 2011 floods Yes 66 33
No 134 67
After 2011 floods Yes 87 43.5
No 113 56.5
Source: Field survey.

However, SMEs’ management who were unaware of insurance policies available to them
increased the vulnerability to SMEs from floods. Insurers must seek additional measures to reach
those in the SME sector and encourage more participation in insurance from disasters.
We found several reasons that contributed to the reduced number of insurance policies among
SMEs (Table 3). The major reason tends to be high premium rates that reduce the inclination to
adopt insurance as a disaster preparedness tool. A perceived dependency on government aid follow-
ing floods acts as a barrier to the adoption of insurance. The long period of reimbursement for
damages contributes to distrust among SMEs towards the insurance companies. SMEs are also
either not aware of flood-focused insurance policies available on the market or, in the case of Indus-
trial All Risk (IAR) policies (which include losses from floods) higher premiums act as a disincentive.
One respondent from an insured SME stated:
“Insurance companies ask such high premiums and during floods we have to go to them and put in lots of efforts
to claim losses. They take long time to reimburse the claims with several conditions. I feel it’s better to depend on
government aid after floods and our own financial contingency funds rather than on insurance.”

These perceptions increase the vulnerability of SMEs. Insurance companies need to speed up the
reimbursement process in order to win the trust of SMEs, along with either reducing or providing
incentives to compensate for high premiums. The government must emphasise the adoption of
insurance policies prior to disaster events rather than providing aid after the event, which is generally
utilised for disaster relief rather than disaster recovery.

Insurance and disaster risk reduction

Insurance as a tool for disaster risk reduction relies on the affordability to vulnerable SMEs. Other sta-
keholders such as government and insurance companies should improve the affordability of insur-
ance in order to popularise it among vulnerable SMEs. Thai SMEs tend to save the premium cost
of insurance and use these finances towards routine business expenses. The risk and possible
impacts need to be communicated to all stakeholders to enhance the resilience of flood-affected
The government, both at local and national level, should generate awareness regarding the risk
and vulnerabilities of flood hazards among both insurance companies and SMEs. Flood risk manage-
ment through risk awareness and information dissemination among stakeholders reduces risk and
limits vulnerabilities (Surminski and Eldridge 2015).
SMEs are reluctant to adopt insurance due to several factors (Table 3). Flood risk management
initiatives, adoption and implementation at the SME level are often missing due to a lack of incentives
and opportunities. Therefore, SMEs are more vulnerable to recurring floods in the absence of risk
reduction through insurance.
Table 4 depicts the flood risk reduction measures adopted before and after the 2011 floods. We
found a decrease (2.5%) in the adoption of the flood risk reduction measures. More than 66% of SMEs
did not adopt any flood risk reduction measures. The flood-affected SMEs tend to avoid flood risk
reduction mechanisms and increase their vulnerability to future floods (Abbas et al. 2016).

Table 3. Reasons contributing to the lower adoption of flood insurance.

Reasons Frequency %
High premium 71 35.5
No flood risk 60 30
Longer period of reimbursement 27 13.5
Government must provide financial aid 27 13.5
Lack of disaster-focused policies 15 7.5
Total 200 100
Source: Field survey.

Table 4. Flood risk reduction measures adopted by SMEs in the study area.
Flood risk reduction measures Response Frequency %
Before 2011 floods Yes 73 36.5
No 127 63.5
After 2011 floods Yes 68 34
No 132 66
Source: Field survey.

Inclusion of financial incentives, risk-based insurance premium rates, and compulsory insurance
among the SMEs encourage SME management to adopt insurance (Lamond, Proverbs, and Hammond
2009). Thai SMEs require a comprehensive risk reduction mechanism and incentives to enhance
motivation to adopt and implement risk reduction tools. Government policies could enhance the sustain-
ability and resilience among these SMEs through risk transfer measures, namely insurance.

This article outlined the loopholes in the disaster management and recovery mechanism adopted by
small and medium enterprises in the areas of Pathumthani province affected by floods in 2011. The
lack of government planning and policy implementation, utilisation of adequate financial and man-
agerial disaster recovery tools such as insurance and business continuity planning are the major
factors contributing to the recovery of SMEs from flood disasters.
The study suggests a number of recommendations for achieving resilience among SMEs during
flood disasters:

. Improve awareness among SMEs, especially the management, about the accessibility and adequ-
ateness of insurance.
. Encourage accurate disaster risk perception in SMEs through business risk analysis.
. SMEs should depend less upon government aid, and opt for self-sustaining tools such as
. Government should intervene through policies and subsidies to motivate SMEs to be insured
against natural disasters.
. Strengthen ties between insurance companies and SMEs in Thailand.
. Introduce affordable insurance premium rates for vulnerable SMEs.

The existing coping mechanisms are unable to reduce the long recovery time. Disaster risk
reduction and disaster recovery should be involved at all levels of policy formulations. The govern-
ment should focus on recovery as well as disaster preparedness among SMEs, that are crucial for
economic growth and employment.
This study paves the way for further research into the affordability of insurance among flood-vul-
nerable SMEs, and the inclusion of mandatory flood insurance through government interventions.
This research would provide for sustainable and resilient SMEs, enhancing growth and development
among disaster-prone countries.

The authors would like to acknowledge the constant guidance, support, and motivation from Mr Shobhit Pathak, Dr
Swapnamita C. Vaideswaran, Dr Girish Chandra Joshi, and Mr Ajay Bhatnagar throughout this research.

Disclosure statement
No potential conflict of interest was reported by the author.

Notes on contributors
Shubham Pathak is a doctoral candidate in Disaster Preparedness, Mitigation and Management (DPMM) at the Asian
Institute of Technology (AIT), Thailand. He has worked in disaster management and GIS in India and has published on
flood disaster recovery.
Mokbul Morshed Ahmad is Associate Professor and Coordinator in Regional and Rural and Development Planning (RRDP)
at the Asian Institute of Technology (AIT), Thailand. He has authored publications on human conflicts, disaster manage-
ment, climate change adaptation, and NGOs.

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