The Hindu Business Line : A `disastrous' year for insurers

GRAPPLING with the after-effects of the tsunami, floods in Mumbai, Gujarat, Chennai and Bangalore and earthquake in Jammu & Kashmir, the insurance industry has recorded a loss in excess of Rs 3,000 crore.

Yet, this is just a fraction of the total economic loss, which is believed to be more than 20 times the insured losses.

Mr Dalip Verma, Managing Director, Tata AIG General said, "If we were to consider the natural catastrophe losses in 2004, North America suffered 46 natural calamities and logged insured losses of $32.91 billion. The figures for Asia in 2004 were 169 natural catastrophes and insured losses of only $12.09 billion. So, Asia has weathered three times the number of natural catastrophes but has pegged insured losses of less than half of North America".

The low penetration of insurance has meant that Tata AIG General received more than 2,500 motor claims, but only 10 from householder policies during the Mumbai floods.

The magnitude of losses from the Mumbai flood, however, overshadowed most other catastrophes. While the floods in Mumbai caused losses of more than Rs 2,000 crore, the claims from Chennai floods amounted to Rs 100 crore. Maharashtra alone accounts for 27 per cent of the entire country's non-life premium. Compared to this, the entire south zone accounts for 23.52 per cent and east zone accounts for only 9.24 per cent of the non-life pie.

Consumers faced difficulty with respect to motor claims on Mumbai floods.

Auto manufacturers and dealer stations found it tough to service the large number of claims. What were the lessons that insurance companies learnt about disaster management?

Mr Easwara Narayanan, Zonal Manager, Bajaj Allianz General, said, "Natural catastrophes have had some repercussions for the industry. There is more awareness about the need for insurance among customers and the significance of underwriting discipline and the ability to deal with large claims among insurers".

Companies have also put in place a study for business continuity planning.

Mr Ajit Narain, MD and CEO, Iffco-Tokio, " We conducted a study for business continuity planning. The study revealed some significant insights on risks, both from customer's point of view and internal business impacts."

The study showed that several corporates had to bear the brunt of being insufficiently insured.

Though fire policies cover Storms, Typhoons, Floods and Inundation Perils, corporates secure a discount by excluding it from the cover.

In the recent floods, this exclusion has meant huge losses for companies. In fire and allied perils, earthquake is another option that is excluded for the sake of lower premium.

Reinsurance rates are a worrying factor for insurers.

Globally, Hurricanes - Katrina, Rita and Wilma have shored up reinsurance losses of $60 billion. The ripples of the disaster are being felt worldwide since the reinsurance rates could head northwards.

The effect of a possible hardening of international reinsurance rates has spurned the domestic non-life insurance companies to get into action.

The general insurance industry is exploring the possibility of a natural catastrophe pool as a buffer against the likely hardening of reinsurance rates.

In the aftermath of 9/11, when reinsurance rates had skyrocketed, Indian insurance companies had in a similar way put together a "terrorism cover pool". This pool can currently cover an indemnity of Rs 500 crore in any location.

Mr M. Ramadoss, Chairman, Oriental Insurance Company said, the net impact of all the natural catastrophes on the balance sheets of insurance companies for the whole year would not be more than Rs 150 crore since the bulk of the loss was reinsured.

The key question now is whether reinsurance rates will harden.

Mr Verma said, "Worldwide, the property rates will see a hardening and also there will be less capacity in the market. In India, most local insurers will be mindful of accumulation exposures in their book."

He adds, "However, this shall not affect the direct customer or the policyholder because in the next year the property rates continue to be tariffed and the customer shall be charged the same rates as in 2005. For the reinsurers, however, 2005 has been a costliest year as far as the losses go."

All eyes are set on the months of February and March 2006 - because that is when the treaty renewals will take place.

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