Risk firms yet to form earthquake pool

The domestic insurance industry's plan to form an earthquake pool, drawn up a year ago on the lines of terrorism pool, is still hanging fire.

An earthquake pool refers to a corpus where public and private insurers contribute to cover a disaster such as earthquake so that the risk is mitigated.

C S Rao, chairman, Insurance Regulatory and Development Authority (Irda) told Business Standard, "The earthquake pool still has not taken concrete shape owing to non-availability of data."

Rao points out the real issue is past data as earthquake cover comes under fire portfolio, therefore, the claims arising out this segment will require indepth study as whether it has risen from earthquake or floods. There is no separate classification for flood or earthquake

At present, if there are huge claims in the event of earthquake, the domestic reinsurer, General Insurance Corporation, will have to bear the entire amount of reinsurance while passing the remaining to overseas reinsurers.

If a earthquake pool is formed where private insurance can also participate in the form of pooling in their funds towards it, it would help them offer an earthquake policy at a moderate price.

A technical expert committee was formed to study earthquake zones, classifying different parts of the country depending upon the intensity of earthquakes. There still are no specific regulations followed while constructing huge structure in earthquake-prone zones.

Terrorism pool was mooted in 2001, and the corpus has grown from Rs 300 crore to Rs 500 crore as on February 2005. Both public and private insurers contribute to terrorism pool and is managed by GIC.

The objective of having such pools like the terrorism pool, insurers are necessarily not largely dependent on overseas reinsurers in case of such a calamity.

The significant fact being since there has been no significant terrorism attacks the pool created has helped in the reduction of cost of cover. If a earthquake pool is created it will work on similar lines.

When Rao was asked as to when the earthquake pool will be launched, he said that it depend the need of insurance companies.

Would the Mumbai floods make insurers look at the need? Rao replied that they would go in for reinsurance (catastrophic cover).