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The earthquake that hit Nepal and parts of India has brought back the issue of having a natural catastrophe pool that will protect people from losses from these incidents. While the proposal to have such a pool was presented to National Disaster Management Authority (NDMA), it has yet to take final shape.
Sources said that while discussions were on with NDMA, pricing and structure of the pool were not worked out. An officials privy to the discussions said that this may be only available for free for those below poverty line, while others have to bear a cost. Also, all areas may not be covered and only those prone to natural disasters would be given the cover.
"Reinsurance of the pool is another area where we need significant presence of foreign capacity. But, we are yet to receive confirmation from all big global reinsurers on this issue," said an official working on this pool.
Last year, General Insurance Corporation of India (GIC Re) said that they are working on a plan to set up the pool. This pool was to have a general standardised cover and the risks would be underwritten by non-life companies which would later to be transferred to this pool.
At present, India does not have a single cover that covers all catastrophic incidents. Insurance Regulatory and Development Authority of India (Irdai) has also said that in the future the country may need it as a separate category.
Two years ago, non-life insurance companies had presented a concept paper on catastrophe insurance to the NDMA. The concept paper highlights the need for a pool mechanism to deal with losses from catastrophic events.
In the absence of such a pool, both insurers and reinsurers have to bear the cost, leading to a big hit on their profitability. However, it is still stuck as a concept because there has been no consensus between the insurers and NDMA on who would fund the process and how the pool will function.
Later this was even presented to the finance ministry, but no formal decision was taken on it.he main areas, according to the general manager of a public sector general insurance company, 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.
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.
While both the General Insurance Council and Irdai had made efforts to set up this pool, a formal notification giving a guidance for its implementation has not yet been given. In fact, former Irdai chairman J Hari Narayan had mentioned catastrophe insurance (and pool formation) as one of the unfinished agendas of his tenure.
Asia suffered the highest economic loss from natural catastrophes and manmade disasters, according to latest sigma study conducted by Swiss Re.The 'Natural catastrophes and man-made disasters in 2014' study said that Cyclone Hudhud, earthquake in China, monsoon floods in India and Pakistan led to loss of over 7,000 lives in Asia in 2014, with a total cost of disaster events estimated at $52 billion (Rs 3.23 lakh crore).
Globally, total economic losses from all disaster events were $110 billion (Rs 6.84 lakh crore) in 2014, where Asia contributed 47 per cent to the total global losses. Out of the total loss, only $5.2 billion (Rs 32,344 crore) worth of losses were insured in Asia.
The study said that there still lies a big protection gap with the lack of insurance cover in many countries in Asia.
Together, the total losses in India and Pakistan were $5.9 billion (Rs 36,698 crore), and insured losses were at least $0.2 billion (Rs 1,244 crore). The total losses from the destruction of housing in India were at $4.4 billion (Rs 27,368 crore).
