India is a tropical country with high frequency of rains resulting in annual floods in many states along with landslides and cyclones. Apart from causing floods and landslides, these natural calamities often result in loss of property and personal belongings. When it comes to insurance there is no specific comprehensive flood insurance cover but there are few standalone covers like home and car insurance which are based on the analysis of aftermath of the floods.
“India is a growing economy with a huge population exposed to flood,” said Nymphea Batra, CEO and MD, Guy Carpenter India, adding, “Asia Pacific region has historically suffered the most flood related losses with a meagre 7 per cent of them covered by insurance. India, for example, suffered huge flood losses in Maharashtra, Gujarat, Karnataka, etc in 2019 to the tune of $9 billion with only 3 per cent covered by insurance.”
“The changing landscape and urbanisation in metro cities in addition to extensive industrial areas pose a complex risk. As asset values are increasing, low insurance penetration still leaves the Asia Pacific region and particularly India without adequate protection. These factors combine to create a challenging situation and our India Flood Model will help to address these risks. Guy Carpenter is dedicated to working with our clients to help them understand and manage their exposure to natural perils, especially to poorly modelled perils,” Batra further said.
When it comes to insurance there is no specific comprehensive flood insurance cover but there are few standalone covers like home and car insurance which are based on the analysis of aftermath of the floods. This is because there isn’t any accurate mechanism in India particularly to predict floods, cyclones, Typhoons or Hurricanes way before they strike. Hence insurers often find it difficult to conduct accurate damage risk analysis due to lack of proper raw data.
Currently, flood insurance is available with Standard Fire & Special Perils Policy and Householders Insurance Policy. So, despite having a high frequency of floods, there are no flood-specific insurance policies available in India.
Batra describes the features and benefits of flood insurance and how different it is from fire and householders insurance:
The features and benefits of flood insurance
Flood insurance is generally provided as part of the Standard Fire & Special Perils policy of Insurance companies that offers cover against Fire and Allied Perils which are named In the Policy. Flood is a named peril in the policy as part of the larger “STFI” cover, which includes Storm, Tempest, Cyclone, Typhoon, Hurricane, Tornado and inundation as perils and attracts a specific fixed rate as prescribed by the regulator. This cover can be applicable to Building (Including Plinth and Foundation), Plant & Machinery, Stocks, Furniture, Fixtures & Fittings And other contents.
How different is it from fire and householders insurance
As mentioned above, Flood peril is part of the Standard Fire & Special Perils policy of insurance companies and would be covered under a standard Fire and householders policy. There is however a specific rate attributed to “STFI” perils within the policy and the insured can decide whether they want to have the “STFI” peril included in their Fire or householders policy. This is not applicable to the Standard IRDAI products of Bharat Udyam Suraksha Policy, Bharat Sookshma Udyam Suraksha and Bharat Griha Raksha Policy where STFI is a named peril, and the cover is standard for all insurance companies except for the add on covers provided.
How to avail it and how is the claim settlement process
Generally, all policies would have “STFI” peril included within the Standard Fire & Special Perils policy and the standard IRDAI products as mentioned above so the insured can avail the flood insurance benefit as part of their Fire or Householder policy. The claim settlement process follows the standard claim process of the Fire policies where the insured needs to notify the insurance companies in case of damage due to flood and final settlement is based on the assessed damage to the insured.