With the rising incidences of natural disasters in the country, the Insurance Regulatory and Development Authority of India (Irdai) is working on a plan to launch government-funded catastrophe (cat) cover for the poor sections of the society.
Irdai has written to the Centre, seeking its approval for the project, a senior Irdai official said.
After getting the government approval, the regulator will launch the cat cover in select states as a pilot project, he said.
In India, uninsured losses from all catastrophes and man-made disasters were 84 per cent of the total losses in recent times.
Though the severe flash floods in Chennai in 2015 were the largest disaster, causing estimated economic losses of $2.2 billion, insured losses were estimated at around $755 million — making these floods the second costliest insurance event in India and a large part of the losses originated from commercial lines.
The event highlighted the vulnerability of rapidly growing urban areas to flash floods caused by heavy rain. The crop insurance scheme launched by the government has aided the farmers to a great extent in the past two years.
At present, the central government and the state governments are compensating for the huge losses in natural disasters to the extent they can, creating deep holes in the pockets of public finance. After being hit by massive floods that led to over Rs 25,000 crore of economic losses, the Kerala government had invited state owned GIC Re and the second largest global reinsurer Swiss Re to suggest insurance solutions as part of disaster management. However, this initiative did not make any progress, sources said.
Further, instances like high-rise fires in Mumbai and other parts of India serve as grim reminders of potential catastrophic consequences for the government and society. Such disasters have the potential to put enormous stress on the financial resources of state governments that are overburdened.
Insurance experts say most of the losses suffered in natural disasters are not insured, for reasons such as lack of purchasing power, lack of interest in insurance and ignorance of availability of such covers. Some insurance companies including joint ventures with foreign insurers are providing catastrophic covers implying that the commercial and private sector can also play an essential role in disaster mitigation with the right incentives.
The proposal for an insurance catastrophe pool (INCIP), which would have mitigated the sufferings of people, proposed some years ago was stuck with the government with no decision taken about charging of premium and the complex issue of implementing the scheme across the country.
After Cyclone Nilam hit Tamil Nadu in 2012, the insurance industry and the Finance Ministry joined hands to set up an exclusive catastrophe pool to cover the losses that occur in natural disasters. As per the proposal, there should be a standalone policy — with a minimum cover of Rs 1 lakh — covering all natural catastrophe perils with the benefit of cover going to those or their kin who are directly affected by the disaster.
The plan which was developed with the active involvement of National Disaster Management Authority and GIC Re was stuck over administrative issues, said an official. Insurance officials said state government buildings are not insured and funds from the exchequer are used to repair losses due to fire or floods.
Through the initiatives of the central government like Pradhan Mantri Fasal Bima Yojana (PMFBY), Ayushman Bharat, Pradhan Mantri Jan Dhan Yojana (PMJDY), insurance is being used as a social security and social empowerment tool to reduce the financial burden for the government through effective risk transfer solutions. A similar measure as part of the country’s strategy towards disaster management can bring about enormous benefits to the citizens and the government, said an insurance official.