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Kerala floods: PSU insurers likely to be worst hit as claims touch Rs 2,000 crore

Oct 24, 2018

As insurance claims from the devastation of life and property in Kerala floods touch Rs 2,000 crore, the claims payouts are likely to impacted public sector insurers more than private sector ones, according to industry sources.

Experts attribute the hit to higher exposure. “Public sector general insurers had a higher exposure (than private peers) to Kerala and Karnataka. Hence, the impact of the claims will be seen in our underwriting performance. This will directly impact the bottom line,” said a senior claims executive of a state-owned insurer.

Out of the Rs 2,000 crore gross insurance claims, it is estimated that majority have been from the motor insurance segment since several cars/bikes were submerged in water for several days after incessant rains lashed the state in July and August.

When the claims paid are higher than the premiums collected, a general insurer faces an underwriting loss.

Among the private sector insurers who have announced their financial results for the second quarter, ICICI Lombard General Insurance in its analyst call said that they faced a net impact of Rs 25 crore from the Kerala floods.

“The company’s losses are much lower than its natural market share and our share of the Kerala losses is 3.3 percent of that of the industry,” said Bhargav Dasgupta, MD and CEO, ICICI Lombard, in a post-earnings analyst call.

Meanwhile, Bajaj Allianz General Insurance took a hit of Rs 62.9 crore from the Kerala floods.

Most insurers had taken reinsurance support for the business written, meaning that they had taken a risk cover to protect against large financial losses.

Currently, insurance companies are in the process of settling the Kerala flood claims. The regulator has asked insurers to simplify the claims settlement process for the state.

While almost 500 deaths are estimated to have occurred in the floods, few had a life insurance policy. Hence, death claims have been low.

Past catastrophes and insurance losses

In November 2015, Chennai and adjoining areas were hit by heavy rains and flash floods. About Rs 5,000 crore worth of insurance claims were filed for death, property and vehicle damage. Even here, public sector insurers like United India Insurance were the worst hit.

In the last five years, natural catastrophes have led to insured losses of almost Rs 20,000 crore for companies. Some of the large catastrophic events include the 2013 Uttarakhand floods and Cyclone Phailin in 2014, Chennai floods and the recent floods in Kerala and Nagaland.

According to a Swiss Re report, the total insured losses from natural catastrophes and large man-made disasters were $144 billion in 2017. An active hurricane season in the North Atlantic, and a series of wildfire, thunderstorm and severe precipitation events across different regions pushed global catastrophe claims to their highest level ever recorded in a single year.

The total economic losses were $337 billion, making an all-peril global catastrophe protection gap of $193 billion in 2017. Globally, more than 11,000 people lost their lives or went missing in disasters, while millions were left homeless.


'Insurance gap' threatens disaster-vulnerable poor nations - Lloyd's

Oct 22, 2018

Disaster-prone developing nations, including Bangladesh and Indonesia, are exposed to crippling losses when storms, floods or earthquakes strike because they suffer from a dangerous lack of insurance, industry experts said on Monday.

Globally, assets worth about $163 billion are not insured against catastrophes, posing a "significant threat" to livelihoods and prosperity, London-based insurance market Lloyd's said in a report.

The value of "underinsured" assets has shrunk by only 3 percent since 2012, it noted.

Many countries with the lowest levels of insurance are also among those most exposed to risks, including from climate change impacts, and are least able to fund disaster recovery efforts, it added.

"If insurance is not available, catastrophes can have a much greater impact on economies and lives," Lloyd's Chairman Bruce Carnegie-Brown said in a statement.

Emerging and low-income economies account for almost all of the global "insurance gap", the report said.

Insurance penetration rates - total insurance premiums as a percentage of gross domestic product - are on average twice as high in rich nations as those in developing countries, it noted.

Bangladesh, India, Vietnam, the Philippines, Indonesia, Egypt and Nigeria all have an insurance penetration rate of less than 1 percent, it said.

After a disaster, uninsured losses usually have to be paid from government funds - a problem for poorer countries that cannot afford to rebuild.

"Catastrophes coupled with underinsurance can be seen as one of the significant factors that holds back economic development and perpetuates global inequality," the report said.

Some risks in richer nations also are not well-covered by insurance, it noted, including earthquakes in Italy and floods in the United States.

Slow progress on expanding the use of insurance to protect against risks is "concerning", the report said - and remains the case despite many economies bouncing back from recession in the six years since the "insurance gap" was last measured.

It is particularly worrying given the upsurge in "more severe, frequent and costly natural disasters, driven in large part by climate change", the report added.

Last year was one of the costliest for natural catastrophes in the past decade - and expected economic losses from such disasters now total $165 billion annually, Lloyd's said.


One of the main barriers to taking out disaster insurance in developing countries is that it is too expensive for many.

Limited understanding of its value and lack of trust in insurance companies also stand in the way of policies being sold, the report said.

But insurance, combined with investment in improving resilience to disasters, can cut losses, the report said.

Studies suggest each dollar invested in reducing disaster risk saves about $4 in recovery costs.

Another report also released on Monday by Lloyd's and the UK-funded Centre for Global Disaster Protection outlined four innovative financial instruments that could generate cash to invest in resilient infrastructure and boost insurance coverage.

They include loans that incorporate insurance to keep interest payments low, and bonds whose payments are linked to the success of resilience measures.

Another idea is "resilience service companies" that would retrofit buildings to better withstand natural hazards, for example, reducing risks and lowering insurance premiums.

Daniel Stander, global managing director of Risk Management Solutions, which worked on the report, said the instruments aimed to ease the initial costs of building to withstand disasters, and to finance the risks that remain.

"In this way the benefits of insurance can be enjoyed by those who need it most," he said in a statement.

But some climate change experts argue that insurance is not the best method to help the poor cope with the growing damage caused by wilder weather and rising seas as the planet warms.

In a September report, the Heinrich Böll Stiftung North America, a political and environmental foundation, said regional insurance schemes, from which African, Caribbean or Pacific states can buy coverage, had paid out too little, too late in recent years.

It proposed other options to support developing countries, such as international funding to build up social safety nets, relocate vulnerable communities and develop new ways of making a living for those at risk.

Carnegie-Brown of Lloyd's said that, for poorer nations such as Bangladesh, buying insurance was a "low-order issue" compared to other economic problems.

He urged donor governments to work with financial markets to find ways to use aid money to boost protection, adding that current efforts are fragmented and not expanding fast enough.

"The developed world is not really assisting the countries least able to afford the resilience investment that we think they need," he told the Thomson Reuters Foundation.

(Reporting by Megan Rowling @meganrowling; editing by Laurie Goering. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, climate change, resilience, women's rights, trafficking and property rights. Visit


Panel to study paying non-life claims in instalments

Oct 17, 2018

The IRDAI has formed a panel to examine the feasibility of paying out general and health insurance claims in instalments.

“Some general and health insurance companies have proposed payment of claims in instalments in respect of personal accident policies and benefit-based health policies as against lump sum payments,” IRDAI said in a circular.

The concept of settlement of claim benefits in instalments will enable the beneficiaries/claimants to receive payments in a series of pre-determined instalments, reports Hindu Business Line quoting the IRDAI circular.

In order to examine the proposal, the regulator has constituted a working group with Mr Suresh Mathur, ED (Health), IRDAI, as its chairman.

Source: Asia Insurance Review

Title insurance makes little headway

Oct 17, 2018

The Real Estate (Regulation and Development) Act [RERA] has taken effect since 1 May 2017 making it compulsory for developers to take title insurance, but to date, not a single state regulator has mandated it.

Section 16 of the RERA requires developers to adopt title insurance; however, the insurance will be mandatory only after the regulator of each state issues a notification about it, notes Press Trust of India. The new law covers residential and commercial construction.

In addition, since the concept is new in India, not many insurance firms have introduced the product. HDFC Ergo launched title insurance in July, making it one of the first such products launched by private insurers.

Furthermore, developers are hesitant to adopt it, saying it may add to costs. According to financial services company Nisus Finance, considering the real estate sector is estimated at about $50bn each year, the potential insurance premium can be in excess of $1bn each year, which can add about INR150 ($2.12) to INR200 per sq feet of cost to the end product, which is steep for affordable housing.

Nisus Finance MD and chief executive Amit Goenka said, "The burden on developers will be massive because they will have to fork up almost 2-3% of the development value of the project upfront to obtain title insurance, apart from undergoing a prolonged and difficult exercise to verify the authenticity of title to the satisfaction of insurers which will add to the transaction costs."

Title insurance provides coverage against financial loss arising from title defects and other irregularities pertaining to property acquisition.

House of Hiranandani chairman and MD Surendra Hiranandani said the key question in adoption of title insurance is the cost. "Hopefully, if there are a large number of takers, the costs would fall. Right now, it is prohibitively expensive and would impact costs and therefore prices. Also, it should be noted that title insurance covers only part of the risks and does not protect from many kinds of litigation and issues," he said.

Source: Asia Insurance Review

Govt to build talent pool for succession in public sector insurance sector

Oct 16, 2018

The government will create a talent pool of officials who will be eligible for fast-track promotions to hold the top positions at public sector general insurance companies, say Finance Ministry officials.

The government run general insurance industry will see a wave of retirement of senior officials in the next two-three years. There are not many who will be eligible to hold the top positions of these companies, reports The Indian Express.

Meanwhile, the post of the chairman and managing director (CMD) at United India Insurance hasn’t been filled as yet as the appointee — Girish Radhakrishnan, chief executive officer, New India Assurance’s London operation — has yet to get regulatory clearance to be relieved from his present assignment. New India Assurance is also operating without a CEO.

Though the merger of three companies United India, National Insurance and Oriental Insurance has been announced, the issue appears to have been placed on the back burner and MoF’s current focus is to strengthen the insurance companies.

Source: Asia Insurance Review

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