Higher losses during disasters due to abysmally low insurance cover of 8%

Calling for out-of-the-box solutions to address the rising cases of natural disasters, which have since 2001 killed almost 85,000 people and thousands of crores in losses, a report has said the higher losses are due to the abysmally low insurance cover of just about 8 per cent.

India has been ranked third, after the US and China, in recording the highest number of natural disasters since 1900.

The country had 764 natural disasters, such as landslides, storms, earthquakes, floods, droughts etc since 1900, with 402 events occurring during 1900-2000 and 361 during 2001-22, indicating the preponderance of tail events at an alarming frequency and each such event setting new records of economic stress, SBI Research said in a report Monday.

By disaster type, the country is marred mostly by floods. Almost 41 per cent of disasters that occurred were floods, followed by storms. Since 2001, as many as 100 crore people have been impacted, and almost 85,000 people lost their lives.

And the country has the highest loss ratio, given its abysmally low insurance coverage for disasters.

Globally, the overall protection gap has increased to USD 151 billion in 2022, which is much higher than the 10-year average of USD 130 billion, and as much as 54 per cent of the total losses are uninsured. Though still large, this is less than the 61 per cent average protection gap of the previous 10 years.

Among all the countries, France has a nationwide insurance scheme since 1989. From 2016, insured losses have exceeded 550 euros million each year, with the average annual loss standing at 810 million euros compared to an average annual loss of 310 million euros in 200015.

But for India, this is a staggering 92 per cent, which means that an average Indian is insured of roughly 8 per cent of what may be required to protect a family from financial shocks following the death of the breadwinner.

This means having savings and insurance of just Rs 8 for every Rs 100 needed for protection, leaving a protection gap of Rs 92, the report said and called for out-of-the-box solutions to tide over the losses.

"What we need is a public-private solution, say a disaster pool, for natural disasters as insurance can offer many benefits over government crisis loans and grants," the report said, pointing out that if just 2020 floods are considered, the total economic loss was Rs 52,500 crore but the insurance cover was of only 11 per cent.

"If the government would have insured it, then the premium for the sum assurance of Rs 60,000 crore would have only in the range of Rs 13,000-15,000 crore."

And the losses due to the ongoing floods in the north is the range of Rs 10,000-15,000 crore as the calamity has severely hit Himachal Pradesh, Uttarakhand, Punjab, Uttar Pradesh, Rajasthan, J&K and Delhi. Himachal alone would have lost Rs 3,000-4,000 crore by way of damaged roads, transformers, electric sub-stations and water supply schemes, according to the report.

In the MSME sector, only 5 per cent are insured and herein comes the role of the government, which could launch a partnership programme to cover MSME employees and provide social security to them in terms of insurance benefits and income protection for their families by insuring MSME promoters.

The contours of such a programme can involve bonuses to MSME entrepreneurs for running businesses sustainably for over a decade with regular payment of interest to banks and taxes to the government.

Even a bank can annually provide 0.5 per cent of interest earned into a linked account with a lien, and after the successful running of the business with no default, the corpus built in the lien-marked account should be paid to the borrower as a mark of recognition of running a business, with the fulfilment of all financial discipline with a clause that it should be used for welfare of the employees.

Similarly, the PM-Jan Dhan Yojana scheme, which now benefits 120 million, can be provided to all the residents with an opt-in facility.