Weather insurance may see 100% loss ratios

Crop damage due to cyclones to lead to increase in loss ratios of the company

India’s weather insurance segment may report 100 per cent loss ratios this year, owing to Cyclone Phailin, which caused extensive damage to crops, including paddy and seasonal vegetables. Insurance companies said crop damages would lead to an increase in their loss ratios.

While Cyclone Phailin, which hit Odisha and Andhra Pradesh on October 12, did not cause huge loss of lives, it led to severe destruction of houses made of mud and hay (‘kachcha houses’) and public property, apart from paddy crops. The massive floods that came after the cyclone inundated parts of Odisha and Bihar, affecting crop there.

K G Krishnamoorthy Rao, managing director and CEO of Future Generali India Insurance, said while the weather-based crop insurance scheme (WBCIS) had performed well in the initial periods of the year due to a good monsoon, the cyclone could result in losses because the insurer had exposure in the affected areas.

SEASON OF LOSSES

• Weather-based insurance schemes by general insurance companies provide insurance cover for crops against damage from natural calamities
• The schemes are based on the fact that weather conditions affect crop production even when a cultivator has taken care to ensure good harvest
• The after-effects of Cyclone Phailin, will increase losses for insurance companies
• Insurance firms could be further hit as another cyclone, Helen, also caused heavy damage to the paddy crop in several districts of Andhra Pradesh

The after-effects of the cyclone, such as floods, had multiplied the damage to crops, which could increase the losses, said another official.

Weather-based insurance schemes by general insurance companies provide insurance cover for crops against damage due to floods and other natural calamities. These companies work with farmers on a district-by-district basis.

In WBCIS, the claim amounts are settled on the basis of data taken from reference weather stations mentioned in the scheme and managed by an independent third-party organisation.

Although crop insurance specifically indemnifies the cultivator against a shortfall in crop yield, WBCIS is based on the fact that weather conditions affect crop production even when a cultivator has taken all the care to ensure a good harvest.

Senior insurance officials said WBCIS losses could increase because another cyclone, Helen, also caused heavy damage to paddy crops in several districts of Andhra Pradesh.

Sanjay Datta, head (underwriting and claims) at ICICI Lombard General Insurance, said while monsoons this year were good, excess rainfall in some regions and the cyclone have caused crop damage, leading to losses for the insurers.

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

Although 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 next few days.