ROLE OF INSURANCE IN CATASTROPHE RISKS - INDIA Hazard Identification Risk Assessment Risk Prevention Mitigation PC James Executive Director IRDA
IRDA MISSION Policyholder Protection Speedy & Orderly Growth of the Industry Promote High Standards Customer to be informed/advised Customer Service/Grievance Redressal Promote fairness & transparency Encourage Self - Regulation
CURRENT INITIATIVES OF IRDA Micro – Insurance Health Insurance Intermediary Development Detariffing Catastrophe Risks
KEY ASPECTS OF FINANCIAL VULNERABILITY Catastrophe Risk Exposures Insurance penetration Size of the country Diversification/concentration of economic activities (geographically)
INSURANCE AS INSTRUMENT OF STRATEGIC MITIGATION Disasters have significant economic setbacks at ind./comm./society levels The poor & disadvantaged suffer most Insurance significantly empowers people & economy Shifts burden from aid / state intervention
INDIA – COUNTRY PICTURE Notedly vulnerable Risk include-drought, floods -cyclones / storms -earthquakes -tsunami, etc Vulnerability maps indicate areas of multiple risks
RECENT MAJOR DISASTERS Maharastra (Latur) earthquake-1993 Gujarat cyclone-1998 Orissa (super) cyclone-1999 Gujarat earthquake-2001 Tsunami-2004 Mumbai/Gujarat/Bangalore/-2005 Chennai floods Kashmir Earthquake-2005
NATURAL DISASTERS IN INDIA # of EventsAffectedDamages $US (000's) Drought 21 1,391,841,0001,898,721 Earthquake 24 24,966,300524,900 Epidemic ,2770 Extreme Temperature ,000 Flood ,372,85010,365,781 Slides ,3004,500 Wave/Surge 2 647,5991,500,000 Wild Fires 2 02,000 Wind Storm ,279,3408,773,500
HAZARD MAP Wind & Cyclone
EARTHQUAKE
FLOOD
DISASTER MANAGEMENT a multi-disciplinary approach valuable studies by GOI, WB, other bodies incl. reinsurers preparedness plans recovery plans
RISK & INSURANCE To move disaster management from passive to active Work on to identify/reduce/transfer risks Resulting risk reduction a tool for sustainable development Insurance can incentivise risk reduction approaches It can monitor the quality/extent of mitigation measures Pushes the burden of loss from state/ community to insurer
HAZARD IDENTIFICATION Hazards spread across areas (use of historical data) Exposure assessment based on concentration (people/assets) Vulnerability (intensity) estimation calculation of damage ratio Estimation of probable maximum loss (PML) Readiness for the unexpected
RISK ASSESSMENT Keeping track of socio-economic changes Understanding climatic changes Identifying urban/other concentrations Evaluating existing risk paradigms Predicting future scenarios
RISK ASSESSMENT Contd. Risk mapping Use of experience data Inspections / reports Research & studies
RISK ANALYSIS – THE RISK CHAIN Environment Hazard / Risk Factors Exposure Units Consequence Outcome Perils
RISK CONTROL / PREVENTION Risk avoidance Risk Reduction Risk neutralisation Loss prevention Loss reduction
MANDATED RISK CONTROL Land use planning & building code enforcement Strengthening of building codes Compliance with environmental laws Fire prevention rules compliance
USE OF POLICY TERMS & RATES Underwriting & risk scan Inspection & recommendations Use of warranties & conditions Rate variations Deductibles
INSURANCE FACILITATION MEASURES Introduction of new policies Weather insurance Agricultural insurance Micro-insurance policies Compulsion to include cat covers (exclude as option to policy purchaser) riot, strike, malicious act, storm, tempest, flood) Option to add earthquake terrorism
PENETRATION INITIATIVES Micro insurance regulations Bancassurance / covers riding on credit products New intermediaries – Brokers Corporate Agents Government channels Corporate channels – E- Chopal
BUILDING CAPACITY Insurers Reinsurers Terrorism Pool Natcat Pool
RESPONSE AFTER CATASTROPHES Rapid response measures -get loss assessors to the spot -communicating in media -confirming proof of loss generic/specific -interim payments -time frame for settlements
COORDINATED APPROACHES Liaison with authorities Cooperation / coordination among insurers Adopting standard practices Empowerment of officials Board/Regulator/ Govt. oversight
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