How does one protect oneself against sudden terror attacks? At one level, this requires better administrative preparedness. But after 26/11, serious concerns have emerged on managing the consequences of terror attacks that are not confined to psychological trauma but include huge damages to resource and property. The logical solution is to cover losses by anticipating the costs in advance. This implies insuring against losses. But is India?s insurance infrastructure good enough for effectively shielding terror?
India does have a terror insurance pool that was created after 9/11. The size of the pool is roughly Rs 1,000 cr ($200m) and it?s managed by the General Insurance Corporation of India (GIC), with contributions from other insurance providers. At a given point in time, an individual insurer can withdraw a maximum of up to three quarters of the corpus.
The problem in insuring against terror is that the quantum of damages is practically impossible to estimate in advance. Insurance works on the principle of anticipating risks and figuring losses attached with such risks. However, risks can hardly be assessed for uncertain outcomes. Till 26/11, the terror pool was making tidy profits. There were plans to reduce premiums on terror. But the Mumbai catastrophe changed everything. How large should the corpus be? This, again, is difficult to answer.
There are two aspects to insuring terror: loss of lives and damage to property or resources. Addressing the first is simpler. Policies governing life cover for accidental deaths can be used with circumstantial modifications. The second, however, needs to be looked at from the different perspectives of individuals and organisations. During 26/11, individual property owners in the vicinity of the attacks suffered serious damages, but were probably not covered against terror. At best, they had some ?add-ons? that come with standard insurance products covering fractions of their property values. Offering more options to such individuals is essential. It is surprising that despite having become a chronic victim of terrorism, India still does not have a long-term terror insurance policy. A new policy must look at the following issues.
First, the terror corpus needs to be enlarged substantially. There is no doubt that the odds against terror attacks and their concomitant liabilities are hard to forecast. But it might be worthwhile to take the value of damages caused by 26/11 as a benchmark and set the corpus size accordingly. Second, enlarging the corpus will imply increasing insurance premiums. But because individual terror premiums cannot be the same as those of organisations, it?s important to proceed on the basis of the principle of ?ability to pay?. Third, creating a big terror fund for insuring potential victims requires a deeper insight in the country?s insurance industry.
Existing life and non-life insurers need to work together for building the corpus and upgrading products. Without effective public-private partnerships, it will be difficult to create an umbrella big enough for tackling terror.
Four, the IRDA must ensure that terror claims are settled expeditiously. The current settlement rates are not satisfactory. Terror claims cannot be clubbed with other claims and brushed aside for settling later.
The need for an effective insurance cover for terror also draws attention to the unresolved FDI issue. If more foreign players do not enter the industry, then a meaningful terror fund will remain wishful thinking. Mapping the vast Indian market with diverse products designed for providing terror cover to different income groups needs more players and funds. Raising the FDI ceiling in insurance has run into rough weather on account of domestic sensitivities. But terrorism doesn?t affect some; it affects all. Though the dead can?t be brought back to life, effective insurance can at least lessen the distress. Reforms for tackling terror are not confined to law and order only. They include FDI also.
The author is a visiting research fellow at the Institute of South Asian Studies at the National University of Singapore. These are his personal views