Is Capacity Or Price Or Demand A Limiting Factor Towrds Non Devlopment Of Disaster Insurance Products
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Is Capacity Or Price Or Demand A Limiting Factor Towrds Non Devlopment Of Disaster Insurance Products

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Is Capacity Or Price Or Demand A Limiting Factor Towrds Non Devlopment Of Disaster Insurance Products

Is Capacity Or Price Or Demand A Limiting Factor Towrds Non Devlopment Of Disaster Insurance Products

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Is Capacity Or Price Or Demand A Limiting Factor Towrds Non Devlopment Of Disaster Insurance Products Is Capacity Or Price Or Demand A Limiting Factor Towrds Non Devlopment Of Disaster Insurance Products Presentation Transcript

  • IS CAPACITY OR PRICE OR DEMAND A LIMITING FACTOR TOWARDS NON-DEVELOPMENT OF DISASTER INSURANCE PRODUCTS RAVI SHANKAR The New India Assurance Co Ltd Conference on “ Natural Disasters – Fiscal and Financial Risk Management” June 25 – 26, 2003 FICCI, New Delhi
    • Evolution of Disaster Insurance Products in Indian Insurance Market
    • In-built Covers – Ease Vs Equity
    • Insurance Cost – An Inhibitor ?
    • Disaster Claims Cost For Indian Insurers
    • Underwriting Capacity – Strength or Vulnerability?
    • Contd....
    AGENDA
    • Low Insurance Penetration – Awareness, Affordability, Availability
    • Disaster Insurance and State Intervention
    • Expanding Supply of Disaster Insurance – Role of Bancassurance
    • Conclusion
    AGENDA
  • Evolution of Disaster Insurance Products in Indian Insurance Market
    • Product Type :
      • Tariff : Fire, Motor, Engineering, I.A.R.
      • Miscellaneous : Package Insurances
      • Micro-Insurances : Rural Insurance Covers
    • Unique Features :
      • Post Riot Claims in 1984, Perils such as Riots, Strike & Malicious Damage, STFI have become part of the Standard Fire Cover
      • No provision for loading for STFI prone risks such as coastal areas, stocks in open, low lying areas
      • Insurers can not deny FST & RSMD perils but insured can request deletion of such covers to avail discount
  • In-built Covers – Ease Vs Equity
    • Basic Rationale
      • Customer’s ignorance
      • Insurers may be selective
      • Emerging view that disaster perils should be mandatory
    • Tariff simplified
      • Number of Categories of Risk reduced
      • Multiple Rating system abandoned
  • In-built Covers – Ease Vs Equity
    • System Inequity
      • No encouragement for better Risk Management
      • No distinction for high and low Risk exposure
      • Insurers do not have much flexibility in reducing their financial vulnerability by :
        • Raising prices across board
        • Limiting maximum losses claimable
        • Paying for depreciated value of damaged property instead of new replacement value
    • Tariff Products (cover & price) – is lack of choice for customer a hindrance?
    • Tariff rates Vs International trends
    • Surplus under Fire Account – suggestive of over pricing?
    Insurance Cost – An Inhibitor?
  • Insurance Cost – An Inhibitor? 47% 64% Source : GIC Annual Report 2001-02
  • Disaster Claims Cost For Indian Insurers
  • MAJOR CAT LOSSES DUE TO FLOOD DURING THE YEARS 1989 – 2001 (Rs.In Lacs) Date of Loss Loss At Claims Paid July 1989 Maharastra 1964.72 May 1990 Andhra Pradesh 3402.74 Nov 1990 Orissa 118.69 June 1991 Mumbai 4361.23 June 1993 Punjab (Chandigarh) 1704.41 Nov 1996 Andhra Pradesh 4116.72 June 1997 Gujarat 1529.00 Aug 1997 Maharastra 1924.30 Sept 1998 Gujarat / Maharastra 5163.00 July 2000 Mumbai 10795.00
  • MAJOR CAT LOSSES DUE TO CYCLONE DURING THE YEARS 1989 – 2001 (Rs.In Lacs) Date of Loss Loss At Claims Paid 07.11.1996 Andhra Pradesh 4,116.72 09.061998 Gujarat / Kandla 49,753.00 29.10.1999 Orissa 5,537.97
  • MAJOR CAT LOSSES DUE TO EARTHQUAKE DURING THE YEARS 1989 – 2001 (Rs.In Lacs) Date of Loss Loss At Claims Paid 20.10.1991 Uttarkashi (U.P.) 30.96 30.09.1993 Maharashtra (Latur) 107.26 22.05.1997 Jabalpur 247.11 26.01.2001 Gujarat 51,519.00
  • MAJOR CAT LOSSES DUE TO RIOTS DURING THE YEARS 1989 – 2001 (Rs.In Lacs) Year of Loss Event Amount of Claims 1982 Gwalior Rayon 648.40 1984 Smt. Indira Gandhi 8933.00 1985 Gwalior Rayon 704.20 1990 Hindustan Alu. 1000.00 1991 Mr. Rajiv Gandhi 711.00 1992 Gujarat 1739.70 1992 Ayodhya 4651.00 1993 Ayodhya 4920.00 1993 Bomb Blast in Mumbai 3519.00 1993 Sea Rock 1600.00 1998 Reliance Jam Nagar 1920.00
  • Underwriting Capacity – Strength or Vulnerability?
    • Public Sector Insurers (controlling roughly 90% of the market share) have sufficient underwriting capacity
    • Large capacities – no restraint
      • Most of the risks accepted without inspection (necessitated only for PML purpose and FEA discounts)
      • Hardly any risk denied
      • Moral Hazard – no compulsion for customer to implement risk improvement measures
  • Low Insurance Penetration – Awareness, Affordability, Availability
    • Awareness
      • Low insurance awareness in Non-Life Insurance Products specially in Rural segment. Possible causes :
        • Absence of vibrant Agency system and Intermediaries such as Brokers
        • Sparse use of mass media by Insurance Companies to generate awareness about insurance products
        • Low literacy level
  • Low Insurance Penetration – Awareness, Affordability, Availability
    • Affordability
      • Access to the benefit of the insurance is co-related with income level
      • Lower income consumer have difficulty in affording insurance and often live & work in more vulnerable locations
      • Burden of natural disasters tends to fall disproportionally on disadvantaged people
  • Low Insurance Penetration – Awareness, Affordability, Availability
    • Availability
      • Weakness in distribution and delivery systems
        • Inadequate commission levels prevented development of strong Agency network
        • Absence of Intermediaries such as Brokers, Corporate Agency etc.
  • Disaster Insurance and State Intervention
    • Acute need for State sponsored / subsidised disaster insurance schemes for weaker section of the society
    • Encouragement measures such as :
    • Tax benefits for Disaster Insurance covers
  • Expanding Supply of Disaster Insurance – Role of Bancassurance
    • “ The most preferred institution for both purchasing insurance policies and for payment of premiums is the bank, whether this is a commercial, co-operative, Grameen or Rural Regional Bank (RRBs)”
    • Rural Insurance Issues, Challenges & Opportunities – Report on a Research based Study conducted by FORTE
  • Expanding Supply of Disaster Insurance – Role of Bancassurance
    • Bancassurance can emerge as most significant channel for mass sale of simple, standardised insurance products
      • Largest network of offices spread all over the country
      • Huge customer base
      • Insurance covers can be bundled with Bank products e.g. Credit Cards, Debit Cards
      • Insurance products act as security against loans extended to their customers
      • Low distribution cost
  • The coming era may witness growing partnership of Government, Insurers and the Financial Institutions for development of Disaster Insurance Products particularly for the benefit of weaker section of the society CONCLUSION Insurers in India have been bearing a very small percentage (less than 5%) of total economic cost of Disaster Claims.
  • THANK YOU