Re/insurance experts in India are expecting to see an increase in the premium charged by reinsurers for covering flood risk following the recent disaster in the Kerala region, which has caused estimated economic losses in excess of US $3 billion, according to the Indo-Asian News Service (IANS).
Kerala, India flooding – Image by Kaviyoor Santoosh via BBC
IANS reported that experts believe reinsurers may increase the loss deductibles in order to quote a lower rate to cover catastrophic flood risk, which is common during the monsoon season in India.
Tens of thousands of people have been displaced by the Kerala flooding and more than 300 killed, with insurers likely to shoulder considerable claims from damage to property and contents, autos and crops, as well as some commercial claims in the affected areas.
“Incidents of floods in India seems to be regular in recent years,” an anonymous senior insurance industry official told IANS. “The reinsurers may ask the primary insurers to manage the risk with their premium rates. If the primary insurers want a catastrophic insurance cover, then the reinsurers may levy higher deductible to cut down on his own losses in case of flood losses.”
“The deductible will vary from primary insurer to insurer based on their loss experience,” he added.
Another expert stated: “The loss may be high in the case of motor insurance portfolio. Further, Kerala has a sizeable number of costly cars. The insurers may be impacted due to losses in the motor insurance portfolio.”
The insurance sector has taken major losses from flooding in India before, with the 2015 Chennai floods estimated to have caused losses of around US $700 million, while other floods in Kashmir and Uttrakhand may have cost the insurance industry around $200 million to $250 million respectively.
K.K. Srinivasan, a former Member of Insurance Regulatory and Development Authority of India (IRDAI) also told IANS: “The reinsurers may increase their rates and also the deductibles. But the premium rate for the policyholders may not be increased by the primary insurers on their own. They have to get the insurance regulator’s nod.”
The IRDAI has also issued a statement asking insurers to settle claims quickly to help the recovery from the Kerala flooding, particularly for claims under parametric micro crop insurance policies and other state-backed micro insurance schemes with life and livelihood coverages.
According to IANS, there have previously been instances where general insurers have rejected flood claims on the pretext that policies only cover naturally-caused flood loss and not floods caused by the opening of dams or reservoirs by the government.
“However, the IRDAI nipped this concept in the bud,” a former IRDAI official told the publication. “Normally, the policy covers the risk of floods and inundation without specifying the causes.”
