A proposed natural catastrophe re/insurance pool that would provide coverage for incidents like floods, earthquakes, and landslides in India has been delayed for almost five years now due to a lack of consensus on funding and size, according to sources at Moneycontrol.
Re/insurance companies have reportedly been unable to agree on whether funding will be provided by centre, states, or insurers, as well as on the size of the cover, the limits for each individual/corporate, and the size of contributions from each party.
The pool could be used provide insurance for catastrophes like the recent flooding in the Kerala region, which is expected to cause economic losses of at least US $3 billion and may see reinsurers raise the premiums they charge for flood risk.
Sources said that it was initially decided that the nat cat pool would be structured similarly to India’s existing terrorism insurance pool, in which funding is split between the government and all the non-life insurance companies operating in India.
Discussions regarding a nat cat insurance pool were initially raised following India’s 2013 Uttarakhand floods and landslides, which killed almost 4,500 people and caused massive economic destruction.
A paper subsequently submitted to the National Disaster Management Authority (NDMA) proposed that a pool mechanism could mitigate large catastrophe losses for re/insurers, which have totalled almost Rs 25,000 crore (US $3.6 billion) in the five years since.
“As an industry, there is an urgent need to have a pool in place to have a better claims support system for natural disasters,” a senior official at a private general insurer told Moneycontrol.
Sources also warned that, unless re/insurers can agree on the premium rate and standardised products for nat cat events, it is unlikely that the pool will be set up.
It is estimated that the size of the pool will need to be around Rs 5,000 crore (US $713 million) at the initial stage, considering the number of incidents reported across the country.