Weather insurance segment may see 100% loss ratios due to cyclones

Phailin, Helen have caused extensive damage to crops and property

Weather insurance may see 100% loss ratios this year, owing to the Cyclone Phailin that hit the coast of Orissa and Andhra Pradesh in the first half of October 2013. This cyclone had caused extensive damage to crops including paddy and seasonal vegetables. Insurance companies said that the crop damages would lead to an increase in the loss ratios of the companies.

Cyclone Phailin, which hit Odisha and Andhra Pradesh on October 12, did not cause huge loss of lives but it led to severe destruction of 'kuchcha houses' (houses/huts which are made of mud or hay) and public property, apart from paddy crops. The aftermath of the cylone, which caused massive floods in areas of Bihar and Orissa were detrimental to crop health.

K G Krishnamoorthy Rao, MD & CEO, Future Generali India Insurance said that while due to good monsoon, the Weather-based Crop Insurance Scheme (WBCIS) had performed well in the initial periods of the year, the cyclone could result in losses since they have exposure to affected areas.

The after-effects have lead to more destruction of crops, which could spike up the losses, added another official.

Weather-based insurance schemes by general insurance companies provide for insurance cover for crops that have been destructed because of floods and natural calamities. These companies work with farmers on a district-by-district basis.

On a regular occasion, losses in WBCIS range from 60-65%. However, senior insurance officials explained that the losses could increase not just because of Phailin but also cyclone Helen that has caused heavy damage to paddy crops in several districts of Andhra Pradesh. In some regions of the coast, a senior private general insurance executive said, losses could go well up to 200%.

Sanjay Datta, head-underwriting and claims at ICICI Lombard General Insurance explained that while monsoons had been benign to the industry this year, excess rainfall in some regions and the instances of cyclone have caused crop damage, thereby leading to some losses for insurers.

Agricultural insurance is acquiring a big dimension, especially with bottom of pyramid farmers. It is a defined product and is statistically analysed with data from sources like Indian Meteorological Department. The entire process of managing the policy during claims is simple and is also easy to understand. WBCIS is intended to provide insurance protection to the cultivator against adverse weather incidence, such as deficit & excess rainfall, frost, heat (temperature), relative humidity, etc., which are deemed to adversely impact the crop during its cultivation period.

In WBCIS, the claim amounts will be settled on the basis of data taken from reference weather stations mentioned in the scheme and managed by an independent third party organisation. Though Crop Insurance specifically indemnifies the cultivator against shortfall in crop yield, Weather based Crop Insurance is based on the fact that weather conditions affect crop production even when a cultivator has taken all care to ensure good harvest.

Insurance companies have begun to pay claims for the losses received. The total number of claims for the industry, according to early estimates, could be in the range of Rs 80 crore to Rs 120 crore.

Though Cyclone Helen has weakened, it has been followed by massive rainfall in and around the coastal areas of Andhra Pradesh, thereby mounting losses. According to forecasts, Andhra Pradesh may also be hit by a severe cyclone named Lehar in the new few days.