The Hindu Business Line : Weather insurance slow to gain acceptance in India

While weather insurance has gained popularity in the West with almost every corporate studying the impact of the weather on its cash flows, it has just started to catch up in India. The cover is a weather-derived insurance product that would compensate farmers if rains are below normal.

Insurance broking house India Insure Risk Management Services Pvt Ltd said it would make sense to take a policy for weather-sensitive events, products or crops rather than "let mother nature do what she would."

Weather insurance has been "a bit slow to catch up" because of the widely held notion that "the weather is unreliable and hence uninsurable," the firm said.

"But isn't this unreliability a better reason why one should insure against weather?" wonders Mr V. Ramakrishna, Managing Director, India Insure.

Standard property insurance typically covers income losses only when they result from direct physical damage to insured property covered by a peril, the firm pointed out. However, weather insurance fills a gap by providing coverage when the weather causes a loss in income or increase in expenses, but with no physical damage.

The weather underwriting industry issues a "valued-at" policy, which would insure the customer for the full-value. Alternatively, a non-valued policy could also be issued wherein the customer should prove the loss up to a certain limit or a limit for the insurance company to pay.

Another type of weather insurance is "business interruption" coverage. Citing the incidence of a cyclone hitting an offshore oil terminal with high winds and seas forcing a shutdown, India Insure said that "the business interruption coverage would indemnify against loss of income or cost that would result from the inability to move the product."

This type of coverage is expected to be extremely valuable to utilities that incur extra bills. Sources at India Insure said every type of business — power generating units, manufacturers, retailers and construction units — could use such insurance to minimise the financial impact of the weather on their operations.

Weather derivative products are gaining popularity in Europe, the US, Australia and New Zealand, but are not sought after in Asia due to the continent's fair weather conditions. There is, however, a demand in Japan, as it faces extreme weather conditions.

The broking firm pointed out that weather contracts should be based on forecasting rather than on mathematical derivation.

More Stories on : General Insurance | Climate & Weather | Agriculture

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