 "A view of a flooded area near Chennai following heavy rains")
Creating a natural catastrophe pool - a pooling of private insurance companies for better equalising the risk associated with natural disasters - for the country remains a distant dream, as the industry is yet to form a consensus on the structure of the pool and pricing.
The concept was mooted by the finance ministry. While this proposal was presented almost three years ago, size of the pool and who would be a part of it have not been finalised.
In the wake of the natural disaster in Uttarakhand, the talk about the proposal came to the fore. In 2013, non-life insurance companies had presented a concept paper on catastrophe insurance to the National Disaster Management Authority (NDMA). The concept paper highlighted the need for a pool mechanism to deal with losses from catastrophic events.
Because of an absence of such a pool, both insurers and reinsurers have to bear the cost, leading to a big hit on their profitability. In the last two years, catastrophe losses have led to insured losses of almost Rs 15,000 crore, including Uttarakhand floods, cyclones Hudhud and Phailin apart from the recent floods in Chennai and Puducherry.
Senior insurance sector executives said the proposal was still stuck as a concept because there has been no consensus on who would fund the process and how the pool would function. A similar pool for nuclear insurance with Rs 1,500-crore capacity also has been launched in June this year, which will provide covers for hot and cool zones in a nuclear plant.
A pool structure has been existent in India for motor insurance as the declined risk pool as also terror incidents with the terrorism pool. A pool helps to evenly spread the risks and helps faster settlement of claims.
"The crucial 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," said the underwriting head of a large private general insurer.
There was also a proposal earlier to have two different pools, one for below poverty line and one for above, but that has now been scrapped.
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.
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.
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.
India's top 10 cities have $179.8 billion (Rs 11.9 lakh crore) GDP at risk, according to the Lloyd's City Risk Index 2015-2025. This index presents an analysis of economic output at risk (GDP at risk) in 301 major cities from 18 man-made and natural threats over a ten-year period.
Catastrophes caused by natural events, such as extreme weather, pandemics and plant epidemics account for just over half ($98.1 billion) of GDP at risk in the 10 cities. Mumbai has the largest total GDP at risk with a $47.38 billion (Rs 3.13 lakh crore) risk exposure. Almost one quarter of the city's potential losses are related to pandemic risk, followed by terrorism at 16.77 per cent, market crash at 12.94 per cent and flood at 12.89 per cent.
