Premiums for general insurance products under the natural catastrophe segment could see a rise in premiums, in the wake of a rise in the number of incidents in this segment such as floods and earthquakes in the past two years.
Senior executives in the sector had met recently to discuss this and decided that with the rise in claims, the premiums could see an upward revision of 10-20 per cent from FY17.
Insurance companies took a recent hit of Rs 4,800 crore due to claims arising from the floods that hit Chennai and other parts of Tamil Nadu. Public sector insurers had the biggest impact.
“With a rise in claims, it is imperative that premiums also see a proportionate rise,” said a senior general insurance executive.
Similarly, losses were faced from the big earthquake with its epicentre in Nepal. Northeast India was also hit by an earthquake recently, though the claims weren't high. In 2013, floods and landslides in Uttarakhand led to losses of Rs 3,000 crore for companies.
In India and globally, insured losses in natural catastrophes are much lower than economic losses. Insurance penetration is not so high here, with the top 10 cities having $179.8 billion (Rs 11.9 lakh crore) of gross domestic product (GDP) at risk, according to the Lloyd’s City Risk Index 2015-2025. This index presents an analysis of GDP at risk in 301 major cities from 18 man-made and natural threats over a 10-year period.
Catastrophes caused by natural events, such as extreme weather, pandemics and plant epidemics, accounted for just over half ($98.1 billion) of GDP at risk in the 10 cities. Mumbai has the largest total GDP at risk, with a $47.38 billion (Rs 3.13 lakh crore) exposure. Almost a fourth of the city’s potential losses are related to pandemic risk, followed by terrorism at 16.8 per cent, market crash at 12.9 per cent and floods at 12.9 per cent.
In 2014, Cyclone Hudhud hit Andhra Pradesh and Odisha and led to losses of Rs 4,000 crore. According to senior public sector insurance executives, the largest claims had come from Visakhapatnam, where there was damage to commercial units, the airport and the naval base. The crop insurance business took a hit of Rs 2,000 crore owing to destruction of crop fields, especially in coastal Odisha.
Global economic losses from natural catastrophes in 2015 were $123 billion, about 30 per cent. below the 15-year average of $175 billion, said Impact Forecasting, Aon Benfield’s catastrophe model development team. There were 14 multi-billion dollar economic loss events around the world, the costliest being forest fires that went out of control in Indonesia.
Recently, Insurance Regulatory and Development Authority of India Chairman T S Vijayan said there was a need for price correction in the general insurance segment.
In November's flooding at Chennai, at least 200 lives were lost. Corporate all-risk policies, which include production interruption coverage, had seen an influx of claims, with several factories and offices submerged for more than three days. In terms of numbers, motor insurance topped the list of claims, as several cars and motorcycles parked on the roads went under.
A natural catastrophe pool would have reduced the losses and help insurers share the claims from such big incidents. However, this pool is yet to be set up, as the sector is yet to form a consensus on the structure and pricing.