Insurance providers use simulation to assess risk

With detariffing in the insurance sector having come into play since January this year, domestic insurers now have the freedom to charge differential premium rates based on their risk assessment of different categories of customers.

With detariffing in the insurance sector having come into play since January this year, domestic insurers now have the freedom to charge differential premium rates based on their risk assessment of different categories of customers. Keeping this in mind, Pune-based National Insurance Academy (NIA) has evolved a unique concept of “insurance laboratories” that allows its students to learn the nuances of risk assessment and hazard prediction through simulation.

Fifteen such labs have already become operational on NIA campus over the last two years. Among others, the motor insurance lab boasts of an actual crash-test facility to study the probable causes and effects of an accident and gauge whether certain categories of people are more prone to accidents and injuries than others.

The information thus generated can provide answers on how accident claims should be assessed — a function that assumes significance in the post-detariff era. “We have been receiving many requests from insurance companies, who want to use our fire, health and motor insurance labs since detariffing kicked in. The idea is to simulate real-life scenarios, so that one can assess the extent of probable damage during accidents or disasters, and accordingly price insurance products, said K C Mishra, the NIA director whose students are primarily officers from general and health insurance companies on short training stints.

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Citing an example, Mishra said insurance premium rates for engineering equipment or machines had so far been calculated solely on the basis of value of equipment. “In reality, the risk of damage to machines should be assessed by looking at factors such as the design of the factory, safety equipment present there, quality of electrical switches, panels and cables, which are most likely to be the cause of accidents or disasters,” he said.

By factoring in such provisions, insurance rates could effectively be reduced by an average of 5-10 per cent, Mishra said.

Besides motor, fire and health insurance laboratories, NIA’s premises also house a “lightning” lab, a satellite insurance lab, aircraft insurance lab and shipping lab among others. Demonstration equipment for these laboratories is procured either from insurance companies themselves, or other sources.

“For our ship insurance laboratory, we have been provided damaged ship parts by the National Insurance Company. Similarly, for satellite insurance, we are collaborating with ISRO, which provides us models of PSLV and GSLV satellites,” Mishra said.

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So far, donations in cash and kind valued at Rs 12-15 crore have been mobilised to set up the existing labs. The academy has also been receiving proposals to set up labs at different cities across the country to train junior and middle-level insurance officers.

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