Page 221 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Insurance Laws and Practices

Notes
being debated upon. “The main areas that are being discussed include who would fund the
process and formation of the pool, which are the categories of population that would be
covered and whether to have this cover applicable across India or only in those regions
prone to such natural calamities.”

He added while earlier, it was proposed to have separate covers for people below and
above the poverty line, this was scrapped later.
According to industry experts, the General Insurance Council and NDMA would have to
discuss each of these issues in detail and decide on the nature and pricing of this cover.
They added it would take at least 8-12 months for it to be implemented.
In India, while there are covers to protect property and life from incidents such as fire,
floods and earthquake, there is an absence of a ‘natural catastrophe cover’ to cater to the
needs of people. India, along with Bangladesh and Sri Lanka, faced an estimated economic
loss of ` 1,517.1 crore in 2012 from natural disasters including floods and Nilam Cyclone,
according to Aon Benfield’s Annual Global Climate and Catastrophe Report.
While both the General Insurance Council and Insurance Regulatory and Development
Authority (IRDA) have made efforts to set up this pool, a formal notification giving
guidance for its implementation has not yet been given. In fact, former IRDA chairman
J Hari Narayan had mentioned catastrophe insurance (and pool formation) as one of the
unfinished agendas of his tenure.
Reinsurance is also a critical issue, which has dissuaded the industry from taking further
steps in this direction. The CEO of a private general insurance firm explained that at least
60-65 per cent of the risks would have to be reinsured, to enable them to provide cover.
“Since the risks associated with this segment are very high and we do not have the pricing
and pool mechanism in place, reinsurers are not very comfortable in taking a big exposure
in this segment in India, at present,” said the official.
A pool-based concept for natural catastrophe events was first mooted by finance ministry
and later backed by the general insurers. If a pool is formed, on the lines of the terrorism-
pool in India, the losses would be distributed evenly. The pool would consist of regular
premiums being made by the common citizens, with or without additional government
funds infused in it.
A Swiss Re study had said that in 2011, insured losses from global natural catastrophes
exceeded $110 billion, which made it the second-highest catastrophe loss year ever for the
insurance industry.

According to a recent report from catastrophe modelling firm AIR worldwide, there is
nearly a seven per cent probability that the global insurance industry will experience this
loss-level in any given year.

Source: http://www.business-standard.com/article/finance/no-catastrophe-insurance-cover-yet-
113062500013_1.html
Self Assessment

Fill in the blanks:
13. A …………………………………… event results in an extremely large number of claims
being filed at the same time.

14. ………………………………… and ………………………………… are used along with
catastrophe insurance to manage catastrophe risk.

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