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IS CAPACITY OR PRICE OR DEMANDIS CAPACITY OR PRICE OR DEMANDA LIMITING FACTORA LIMITING FACTOR
TOWARDSTOWARDSNON-DEVELOPMENT OFNON-DEVELOPMENT OF
DISASTER INSURANCE PRODUCTSDISASTER INSURANCE PRODUCTS
RAVI SHANKARRAVI SHANKAR
The New India Assurance Co Ltd
Conference on
“Natural Disasters – Fiscal and Financial Risk Management”
June 25 – 26, 2003
FICCI, New Delhi
Evolution of Disaster Insurance Products in Indian Insurance Market
In-built Covers – Ease Vs Equity Insurance Cost – An Inhibitor? Disaster Claims Cost For Indian
Insurers Underwriting Capacity – Strength or
Vulnerability?Contd....
Low Insurance Penetration – Awareness, Affordability, Availability
Disaster Insurance and State Intervention
Expanding Supply of Disaster Insurance – Role of Bancassurance
Conclusion
Evolution of Disaster Insurance Products in Indian Insurance Market
Product Type :Tariff : Fire, Motor, Engineering, I.A.R.Miscellaneous : Package InsurancesMicro-Insurances : Rural Insurance Covers
Unique Features : Post Riot Claims in 1984, Perils such as Riots, Strike &
Malicious Damage, STFI have become part of the Standard Fire Cover
No provision for loading for STFI prone risks such as coastal areas, stocks in open, low lying areas
Insurers can not deny FST & RSMD perils but insured can request deletion of such covers to avail discount
In-built Covers – Ease Vs Equity
Basic Rationale Customer’s ignorance Insurers may be selective Emerging view that disaster perils should be
mandatory
Tariff simplified Number of Categories of Risk reduced Multiple Rating system abandoned
In-built Covers – Ease Vs Equity
System Inequity No encouragement for better Risk Management No distinction for high and low Risk exposure Insurers do not have much flexibility in reducing
their financial vulnerability by : Raising prices across board Limiting maximum losses claimable Paying for depreciated value of damaged property instead
of new replacement value
Tariff Products (cover & price) – is lack of choice for customer a hindrance?
Tariff rates Vs International trends Surplus under Fire Account –
suggestive of over pricing?
Insurance Cost – An Inhibitor?
Insurance Cost – An Inhibitor?
0.00
500.00
1000.00
1500.00
2000.00
Net Fire Premium & Incurred Claims
FIRE Premium
FIREIncr.Claims
FIREPremium
1770.91 1998.94
FIREIncr.Claims
1126.3 931.5
2000-01 2001-02
47%64%
Source : GIC Annual Report 2001-02
Disaster ClaimsCost ForIndian
Insurers
MAJOR CAT LOSSES DUE TO FLOODDURING THE YEARS 1989 – 2001 (Rs.In Lacs)
Date of Loss Loss At Claims PaidJuly 1989 Maharastra 1964.72
May 1990 Andhra Pradesh 3402.74
Nov 1990 Orissa 118.69
June 1991 Mumbai 4361.23
June 1993 Punjab (Chandigarh) 1704.41
Nov 1996 Andhra Pradesh 4116.72
June 1997 Gujarat 1529.00
Aug 1997 Maharastra 1924.30
Sept 1998 Gujarat / Maharastra 5163.00
July 2000 Mumbai 10795.00
MAJOR CAT LOSSES DUE TO
CYCLONEDURING THE YEARS 1989 – 2001 (Rs.In Lacs)
Date of Loss Loss At Claims Paid07.11.1996 Andhra Pradesh 4,116.72
09.061998 Gujarat / Kandla 49,753.00
29.10.1999 Orissa 5,537.97
MAJOR CAT LOSSES DUE TO
EARTHQUAKEDURING THE YEARS 1989 – 2001 (Rs.In Lacs)
Date of Loss Loss At Claims Paid
20.10.1991 Uttarkashi (U.P.) 30.96
30.09.1993 Maharashtra (Latur) 107.26
22.05.1997 Jabalpur 247.11
26.01.2001 Gujarat 51,519.00
MAJOR CAT LOSSES DUE TO RIOTSDURING THE YEARS 1989 – 2001 (Rs.In Lacs)
Year of Loss Event Amount of Claims1982 Gwalior Rayon 648.40
1984 Smt. Indira Gandhi 8933.00
1985 Gwalior Rayon 704.20
1990 Hindustan Alu. 1000.00
1991 Mr. Rajiv Gandhi 711.00
1992 Gujarat 1739.70
1992 Ayodhya 4651.00
1993 Ayodhya 4920.00
1993 Bomb Blast in Mumbai 3519.00
1993 Sea Rock 1600.00
1998 Reliance Jam Nagar 1920.00
Underwriting Capacity – Strength or Vulnerability?
Public Sector Insurers (controlling roughly 90% of the market share) have sufficient underwriting capacity
Large capacities – no restraint Most of the risks accepted without inspection
(necessitated only for PML purpose and FEA discounts)
Hardly any risk denied Moral Hazard – no compulsion for customer to
implement risk improvement measures
Low Insurance Penetration –Awareness, Affordability, Availability
Awareness Low insurance awareness in Non-Life
Insurance Products specially in Rural segment. Possible causes : Absence of vibrant Agency system and
Intermediaries such as Brokers Sparse use of mass media by Insurance
Companies to generate awareness about insurance products
Low literacy level
Low Insurance Penetration –Awareness, Affordability, Availability
Affordability Access to the benefit of the insurance is co-
related with income level Lower income consumer have difficulty in
affording insurance and often live & work in more vulnerable locations
Burden of natural disasters tends to fall disproportionally on disadvantaged people
Low Insurance Penetration –Awareness, Affordability, Availability
Availability– Weakness in distribution and delivery
systems Inadequate commission levels prevented
development of strong Agency network Absence of Intermediaries such as Brokers,
Corporate Agency etc.
Disaster Insurance andState Intervention
Acute need for State sponsored / subsidised disaster insurance schemes for weaker
section of the society
Encouragement measures such as :
Tax benefits for Disaster Insurance covers
Expanding Supply of Disaster Insurance – Role of Bancassurance
“The most preferred institution for both purchasing insurance policies and for payment
of premiums is the bank, whether this is a commercial, co-operative, Grameen or Rural
Regional Bank (RRBs)”
Rural Insurance Issues, Challenges & Opportunities – Report on a Research based
Study conducted by FORTE
Expanding Supply of Disaster Insurance – Role of Bancassurance
Bancassurance can emerge as most significant channel for mass sale of simple, standardised insurance products
– Largest network of offices spread all over the country– Huge customer base– Insurance covers can be bundled with Bank products
e.g. Credit Cards, Debit Cards– Insurance products act as security against loans
extended to their customers– Low distribution cost
The coming era may witness growing partnership of Government, Insurers and the Financial Institutions
for development of Disaster Insurance Products particularly for the benefit of weaker section of the
society
Insurers in India have been bearing a very small percentage (less than 5%) of total economic cost of
Disaster Claims.
