National Insurance Academy calls for mandating natural calamity cover in high-risk areas

National Insurance Academy (NIA) has called for making natural catastrophe (NatCat) cover compulsory in highly-vulnerable and disaster-prone areas in order to reduce the impact of any future natural calamities and build resilience.

This will require collaborative efforts involving government, insurers, reinsurers, brokers, and intermediaries, the institution said as a part of its report on ‘Enhancing Insurance Inclusivity and Bridging the Protection Gap in India’, released by IRDAI Chairman Debasish Panda on December 14.

The NatCat cover will need to be region-specific, considering the climate change, urbanisation, and hazard risk vulnerability of each region, the report said, adding that there is also a need to develop single peril customised NatCat peril insurance based on the disaster risk profile of each region.

Pune-based NIA is an institution dedicated to education, research, and development in management, insurance, pension, and allied fields. The report is based on a survey of 4,755 insured and uninsured customers across metro cities, urban areas from tier-I to -II and tier-IV to VI from rural areas in addition to corporate entities.

The institution proposed that the government make it mandatory for commercial organisations to allocate a certain percentage of revenue towards climate change/DRR (disaster risk reduction) awareness annually, and also explore the possibility of ‘CAT bonds’ for additional funding capacity.

It also mooted compulsory crop insurance for loanee farmers, supported by premium financing from microfinance institutions and agri-input suppliers, and implementation of parametric-based insurance and embedded insurance solutions for scaling up property insurance in India.

Protection gap

Citing 2022 data by Swiss Re, the report said that India currently faces a 95 per cent NatCat protection gap, which is expected to increase due to rising climate risk exposures, infrastructure developments, and rural-to-urban migration. Further, data by Munich Re shows that 91 per cent NatCat losses are triggered by weather-related perils, increasing volatility and reinsurance complexities.

On their part, insurers can offer coverage against these disasters and cross-sell/up-sell to existing customers for revenue growth and loyalty improvement. In addition, there is a need to look at simplified products with lower premiums to attract more customers, including government support for premium subsidies to low and middle-income customers.

“(Re)insurers and brokers should engage in discussions about potential public-private partnership programs. GIS (Group Insurance Scheme)-based hazard risk analytics can reduce future NatCat impacts and enhance insurability,” it said, adding that claims services can be enhanced through satellite-based hazard risk and loss assessment using remote sensing and geospatial technologies.

At present, 84 per cent individuals from low- and middle-income categories lack property insurance, within which 77 per cent customers from coastal regions, tier-2, and tier-3 cities lack property insurance, the report said. It added that there is a need to focus on lower-income and less-educated segments for better insurance awareness and leveraging technology and analytics, including through collaborations with insuretech, for personalised services and customised home insurance with NatCat risk protection and value additions like home security, maintenance and repair services.

It highlighted the need to address emerging risks through developing climate and cyber insurance as top-up covers under standard fire insurance or property insurance for both individuals and corporates.

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