The Hindu Business Line : Study soon on creating natural catastrophe risk insurance pool

A decision on this issue was taken after a meeting between the chief executives of general insurance companies and the Insurance Regulatory and Development Authority recently. Mr K.N. Bhandari, Secretary-General of the General Insurance Corporation (GIC), told Business Line: "The meeting looked at the possibility of setting up a natural catastrophe risk insurance pool. We would be commissioning a study soon on the issue and in all probability we might arrive at a conclusion by the end of the year."

The proposed natural catastrophe risk insurance pool would be structured in the same format as the existing terrorism and motor pools. A pool is a fund created out of the commitments from insurance companies as per their individual exposure. In the case of claims, the pool reserves could be used to make payouts and market forces would determine the size of the pool.

In this case, insurance companies would be putting in the premium collected for providing coverage to natural calamities, which would then be insured abroad.

"The need for creating natural catastrophe pool has been proposed looking at the unpredictability of the weather and the widespread damage caused by natural calamites. Companies while taking optimal rates do not want to take higher exposure so they are willing to create the pool," Mr Bhandari said.

Detariff Regime

The meeting also reviewed the working of the general insurance sector in the last six months under the detariff regime and also convinced the regulator to advance implementing the second phase of detariff regime.

"We have urged the IRDA to consider advancing the second phase of detariff regime from April 1, 2008, to January 1, 2008," Mr Bhandari said.

In the first phase of detariffing, which came into effect from January 1 this year, the IRDA had given freedom to insurance companies to fix premium rates. This leads to a price war among the companies with companies offering heavy discounts on the policies.

Now, in the second phase, companies will be able to customise products for individual clients. Industry observers also feel that this will allow insurance companies to bring in newer and better internationally accepted products in the Indian market.

"The Chairman of IRDA, Mr C.S. Rao, heard our proposal and assured us that he would talk to the concerned authorities (the Government) and get back to us," Mr Bhandari added.

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