Catastrophe Risks and their Financing in India including Regulatory Landscape -YogeshLohiya Natural Catastrophe Exposure in India India is vulnerable to natural disasters & prone to Earthquakes, Floods, Droughts and Cyclones. 85% of Land Area is vulnerable to such catastrophes Earthquake 59% Dense population & old construction adds to the problem. Cyclone - 8041 kms long coastline Large coastal line, large population, large destruction Floods India is 2 nd most flood affected country after Bangladesh. 40 million hectares land mass prone to floods, 8 million hectares affected annually Average Annual Loss = USD 460 million. 1
IMPACT Direct losses due to natural disasters amount to (average per annum) 2% of Indian GDP 12% of Federal Government Revenues All alleviations / mitigation efforts post event Disruption of Trade & Commerce 2
CATASTROPHE EVENT Some of the worst CAT Losses have occurred in India CAT Risk Mapping is not complete. Detailed Data is not available Geographical Position makes vulnerable to events occurring in neighboring areas (Tsunami/Earthquake) GOVERNMENT FUNDS Government Fund made available through State Disaster Relief Fund (SDRF) and National Disaster Relief Fund (NDRF). These plan funds provide for Post Disaster relief and rehabilitation to affected families. Always seen that Central Govt. receive demand for reconstruction of the affected economy from State Govt. always exceeds the Central Govt. assistance/funding. Cont. 3
During Plan Period 2010-2015, the total funding of Govt. is USD 5505 millions. Gap in Central funding for relief and rehabilitation to the tune of USD 459 millions during the period 2002 2011. This brings us to first point that Govt. function for disaster relief has always short of even of the immediate relief activities leave alone future reconstruction of the economy affected by Disasters. Insurance as a solution for funding Cat Risk perils and Insurance Product do provide coverage. Uninsured properties & uninsured losses is around 80-85% of total losses, leaving a huge gap. Therefore, Economic Losses v/s Insured Losses is another area of gap in funding for Cat Losses. REGULATORY LANDSCAPE No Regulation which prescribes mandatory insurance for Cat Risks. Building codes and environment codes prescribed by Government Authorities. No strict implementation of these codes, thereby vulnerable properties gets erected and, in turn, gets affected due to natural calamities. Cont. 4
Recently efforts made by IRDA & National Disaster Management Authority (NDMA) to zero in on few initiatives which would help meeting the Cat Risk funding either through Govt. grants or through Insurance solutions. WAY FORWARD. Insurance Premium as Risk Transfer Strategy Allow states to utilize part of SDRF to pay for Insurance Premium to buy Insurance solution ( As against relying on reserves / contingency funding for relief and plan funding for reconstruction ) For living in highly catastrophe prone urban areas (earthquake & Cyclone to begin with), mandatory insurance of :- Private homes in highly vulnerable zones. Govt. Property like Roads, bridges, schools, hospitals etc. Revenue generating public utilities like electricity, water and drainage. Cont--- 5
Public Places Enlarging scope of Public Liability Insurance Act to cover public places, commercial, non-industrial where large number of people congregate. INCENTIVES Use both funding and risk transfer mechanism to achieve financial resilience in disaster management. Incentive to be provided by Govt. by way of premium subsidies or tax deduction benefit for purchase of such Insurance cover. Govt. funding for Below Poverty Line families like RSBY scheme. INSURANCE INDUSTRY AREA Insurance Industry can design / innovate / develop suitable insurance solutions and affordable simple insurance products at affordable premium rates. 6
Thank You 7