Flood losses pegged at Rs 15,000 cr, but only 8% covered by insurance

In Himachal Pradesh, roads, transformers, electric substations, and water supply schemes have suffered damage. An initial estimate suggests the loss could range between Rs 3,000 cr and 4,000 cr

Natural disaster in the form of Recent floods in North India have resulted in the loss of human lives and an economic loss estimated at Rs 10,000 to 15,000 crore, according to a State Bank of India (SBI) Research report.

In Himachal Pradesh, roads, transformers, electric substations, and water supply schemes have suffered extensive damage. The report suggests that, based on initial estimates, the loss could fall within the range of Rs 3,000 crore Rs to 4,000 crore.

India ranks third, behind the United States (US) and China, in recording the highest number of natural disasters since 1900.

India recorded 764 instances of natural disasters (landslides, storms, earthquakes, floods, droughts, etc) since the 20th century, with 402 events occurring between 1900 and 2000, and 361 from 2001 to 2022. This indicates a frequent occurrence of tail events at an alarming frequency, each setting new records of economic stress.

 

Since the start of the 21st century, a total of one billion people have been impacted, and almost 85,000 people have died due to these disasters, the SBI Research report notes. Almost 41 per cent of the disasters were in the form of floods, followed by storms.

"Since the 20th century, India has suffered an economic loss of $150 billion (where the loss is reported), with the largest loss from floods ($92.1 billion) followed by storms ($44.7 billion)," said Soumya Kanti Ghosh, group chief economic advisor, State Bank of India.

The question is, how does India cope with frequent natural disasters? 

Aside from typical issues related to urban infrastructure planning, the crucial issue of the protection gap (defined as losses that are uninsured) is almost neglected in a country like India.

For instance, out of the total $284 billion in global economic losses from natural disasters in 2022, $125 billion was covered by insurance (incurred losses). The overall protection gap increased to $151 billion in 2022, much higher than the 10-year average of $130 million, but still with around 54 per cent of the losses uninsured. Though this is still large, it is less than the 61 per cent average protection gap of the previous 10 years. For India, this figure is a staggering 92 per cent!

"In effect, an average Indian has roughly 8 per cent of what may be required to protect a family from financial shock following the death of the breadwinner. This translates to having savings and insurance of just Rs 8 for every Rs 100 needed for protection, leaving a protection gap of Rs 92," said Ghosh.

Around 8 per cent of the total losses are covered

Given that only 8 per cent of losses are covered in India, there is a 93 per cent protection gap for the period from 1991 to 2022. Early intervention is necessary to close the protection gap in all lines of insurance.

Though third-party insurance is mandatory, only around 79 per cent of four-wheelers are covered and 65 per cent of four-wheelers are insured only for own damage.

For two-wheelers, the situation is worse, with around 35 per cent of vehicles insured under third-party insurance and 39 per cent covered for own damage. In the health sector, about 36 per cent of people are insured, but three-fourths of them are insured by government schemes, and the remaining 3.2 per cent have individual health plans.

An additional 5.4 per cent have group health insurance. Almost 62 per cent of the total health expenditure is out-of-pocket. Only 0.9 per cent of houses are insured, while in the US, more than 90 per cent of dwelling units have cover.

"Considering the 2020 floods in India, the total economic loss was $7.5 billion (Rs 52,500 crore), but only 11 per cent was insured. If the government had insured it, then the premium for the sum assurance of Rs 60,000 crore would have been only in the range of Rs 13,000 to Rs 15,000 crore," said Ghosh.

The report recommends a public-private solution, such as a Disaster Pool, for managing natural disaster risk involving the insurance sector. This could offer many benefits over government crisis loans and grants. 

What is the process for initiating a flood claim?

Unlike health and motor insurance claims, where there is generally someone available to help initiate the claim, flood claims need to be self-initiated. Ensuring timely intimation to the insurance company is half the battle won.

The Insurance Regulatory and Development Authority of India (Irdai) has instructed insurers to set up 24x7 helplines to address flood-related claims. "One should leverage this service. Speak to them to find out what information is required for intimation. You can start compiling this information even as the flood subsides. Next, it's critical to share proof of damage. Take pictures as soon as you have access to your home, car, or damaged asset," said Karn Thakuria, head of partnerships, Riskcovry.

"We encourage policyholders to use electronic communication wherever possible for correspondence while initiating the claim and filing all the relevant documents. This will significantly enhance convenience for the customer as well as ensure expedited claims processing," said Deepak Prasad, chief operating officer, Future Generali India Insurance.

Policybachat, an online insurance web aggregator, offers the following advice on filing a flood damage claim:

Collect all the necessary documents and information for the claim. This may include policy details, photos/videos of the flood damage, proof of ownership, the contact information of witnesses (if any), and any relevant invoices or repair estimates.

Complete the claim form accurately and thoroughly: Provide detailed information about the flood incident, including the date, time, location, and a clear description of the damages sustained by the vehicle. Ensure that all required fields are filled out correctly and include any additional supporting documentation as needed.

Document submission: Submit the completed claim form and supporting documents to the insurance company within the specified timeframe mentioned in your policy. Adhering to the designated timeline is crucial to avoid any potential claim rejection or delays.

Claim process: Track the progress of your claim and follow up with the insurance company as needed. Maintain regular communication to stay updated on the status of your claim. If there are any discrepancies or delays, do not hesitate to reach out to the insurance company's claims department for clarification or assistance.