After devastating flood, Chennai is faced with massive economic losses. But only a small part of this loss will be insurable. While victims would want their claims quickly settled, insurance companies have to meet claims after physical inspection to assess the losses. This is because India does not have a flood peril model. Such a model would assist insurers manage the risk and exposure as well as better assess damages. It would have helped to have a more granular information for underwriting and claims management.
Globally, such models provide flood insurance studies, flood insurance rates, and maps. Based on these models, insurance coverage is provided – ranging from replacement cost coverage and actual cash value coverage to even alternative living arrangement in case a catastrophe leaves property uninhabitable. Flood period modelling has not be been done so far in the country.
After the flood in Uttarakhand , GIC Re had approached the National Insurance Academy (NIA) for preparing hazard maps for catastrophic and man-made disasters. The NIA urged the Science and Technology Park (Scietech Park), Pune, to carry out this work. So, for the first time in the country, a ‘flood peril pilot model’ is being prepared by GIC Re, NIA and Scietech Park.
The project involves identification and mapping of locations vulnerable to various hazards based on geo codes using Geographical Information System (GIS). Rajendra Jagdale, director general of Scietech Park, said the Damanganga River Basin has been chosen for the pilot. This will be done along 131 kms and on both sides of the river where there is a mix of urban and rural areas.
Bidhan Saha, practice head – India – energy & commercial practice, JLT Independent Insurance Brokers, said the country is highly vulnerable to floods, and of the total geographical area of 329 million ha (mha), more than 40 mha is flood prone. “The frequency of major floods is more than once in five years. Floods have also occurred in areas which were earlier not considered flood prone.”
According to Saha, the average annual flood damage during the 1996-2005 period was R4,745 crore, compared with R1,805 crore, the average for the previous 53 years. Total insured loss estimated during 2005 Mumbai floods was R3,400 crore, while floods in Jammu and Kashmir and the cyclone Hudhud led to insured losses of around R1,500 crore and R4,000 crore, respectively.
After Chennai, Saha said, the general insurance industry is likely to see claims in excess of R500 crore and final estimates would become clear once the water level recedes. According to him, one of the largest hits that insurers expect during flood is damages to motor vehicles, while business interruption is also seen very serious in nature.
Chennai floods may expose insurers to huge business interruption claims as most of the carmakers have their plants there.
“Most claims reported have come for automobiles and property and from small and medium enterprises,” says Saha.
“Unlike in Western countries, damages due to flood & inundation in India are covered under standard fire & special peril policies, industrial all-risk policies and engineering policies, unless specifically excluded with consent.
It is not known how pricing will be affected when treaties with re-insurers come up for renewal on April 1. “I would not like to comment on whether price will get hardened. But, the Indian coast line is susceptible to such loss and lots of things are not taken care of. One of the areas we have to focus on is the retail side. Lot of insurance policies are not covered by fire with extension for floods as awareness is low. There is a huge lack of penetration on insuring houses and properties,” Saha said.
A flood peril model would provide computer-assisted scenarios that would enable calculation to estimate insurance and reinsurance and underwriting. The insurance-integrated GIS MIS application pilot is coming up with a “what if” analysis by combining satellite imagery, maps, data about assets, property and topographic survey, risk and hazard modelling and mapping, and GIS data.
The Scietech Park has started work on the project and GIC Re and NIA will come in the next stage where they will be conducting surveys of how many buildings are insured and what will the claims be. Based on this information, they will plan their business and decide on premiums.