SEMINAR ON DISASTER MANAGEMENT
ROLE OF INSURERS & REINSURERS IN ACHIEVING
THE OBJECTIVES OF NATIONAL POLICY ON DISASTER
MANAGEMENT
FICCI
IRDA
NDMA
11TH AUGUST 2010,
NEW DELHI
PRESENTATION BY SHRI M RAMADOSS
CHAIRMAN CUM MANAGING DIRECTOR
NEW INDIA ASSURANCE
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DEFINITION OF CASTASTROPHE / DISASTER
DEFINITION “GREAT NATURAL CATASTROPHES”
(IN KEEPING WITH UNITED NATIONS DEFINITION CRITERIA)
 THE AFFECTED REGION'S ABILITY TO HELP ITSELF IS DISTINCTLY
OVERTAXED

INTERREGIONAL OR INTERNATIONAL ASSISTANCE NECESSARY

THOUSANDS ARE KILLED

HUNDREDS OF THOUSANDS ARE MADE HOMELESS

SUBSTANTIAL ECONOMIC LOSSES

CONSIDERABLE INSURED LOSSES
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DEFINITION OF CASTASTROPHE / DISASTER
DISASTERS – MAY BE
ACTS OF GOD
MAN MADE (TERRORISM)
ACCIDENTS (CONFLAGRATION, OILS SPILLS, AIR CRASHES, ETC..)
THIS PRESENTATION PROPOSES TO DEAL WITH ACTS OF GOD CAT
EVENTS.
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HISTORY OF EARTHQUAKES IN INDIA
YEAR
REGION
YEAR
REGION
1897
ASSAM
1997
JABALPUR
1905
KANGRA
1998
BIHAR
1934
BIHAR
1999
CHAMOLI
1950
MEDOG
2001
GUJARAT
1967
KOYNA
2004
TSUNAMI – OCEAN
EARTHQUAKE
1975
KUNOOR
2005
KASHMIR
1991
UTTRAKASHI
2009
ANDAMANS
1993
LATUR
2010
NICOBAR
ALLAHABUND FAULT RUNNING THROUGH GUJARAT
INDIAN METEOROLOGICAL DEPARTMENT BELIEVES THAT THE 2001 BHUJ EARTHQUAKE
IS DUE TO RE-AWAKENING OF ALLAHABUND FAULT.
EARLIEST REVEALED
EARTHQUAKE IN GUJARAT IN 1819 WAS DUE TO THIS FAULT, MEASURED 8 ON THE
RITCHER SCALE – FLATTENED ENTIRE VILLAGES INCLUDING SINDREE FORT AND
CRUSHED 3,500 PEOPLE, RIPPED EARTH APART AND CREATED 140 KM LONG SCARP IN
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HISTORY OF FLOODS IN INDIA
REGION
STATUS
BIHAR
MOST PRONE TO FLOODS.
16.5% OF FLOOD AFFECTED AREA AND 22.1% OF
FLOOD AFFECTED PEOPLE LIE IN BIHAR. ALMOST
EVERY YEAR, FROM 1979, FLOODS HAVE
HAPPENED IN BIHAR.
1979-2006, AROUND 5,900 PEOPLE AND 19,000
ANIMALS DIED DUE TO FLOODS IN BIHAR
2005
GUJARAT/MAHARASHTRA
FAMOUS MUMBAI FLOODS OF 26TH JULY, 2005
1,074 PEOPLE DIED
2008
ASSAM, MAHARASHTRA, ANDHRA PRADESH, WEST
BENGAL, ORISSA & UTTAR PRADESH
2009
KARNATAKA, ORISSA & KERALA
THE ABOVE DEPICTS THAT FLOODS ARE HAPPENING
IN ALMOST ALL PARTS OF INDIA.
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HISTORY OF LANDSLIDES IN INDIA
YEAR
REGION
1998
MALPA VILLAGE IN UTTARAKAND. ENTIRE VILLAGE
WASHED OUT.
60 PILGRIMS TO KAILASH MANSAROVER WASHED AWAY,
INCLUDING THE FAMOUS MS.PROTIMA BEDI
2000
MUMBAI LANDSLIDE
2003
VAIBHAVWADI IN SINDUDURGH DISTRICT,
MAHARASHTRA
2004
KARAYA VILLAGE IN MAHARASHTRA
SUCH SUDDEN LANDSLIDES HAD CAUSED TRAIN
DISRUPTION, ACCIDENTS AND LOSS TO HUMAN LIFE.
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HISTORY OF CYCLONES IN INDIA
YEAR
REGION
YEAR
REGION
1942
BENGAL
1976
BENGAL
1946
ANDHRA PRADESH
1977-1980
ANDHRA PRADESH
1956
SALLALAH
1959-1960
SALLALAH
1979
TAMIL NADU
1965
BENGAL
1999
ORISSA
1967-1971
ORISSA
2001
WESTERN INDIA & PARTS OF
NORTHERN INDIA
1972
TAMIL NADU
2009
CYCLONE BIJLI IN EASTERN
INDIA, BANGLADESH,
MYANNMAR
CYCLONE AAILA IN EASTERN
INDIA
CYCLONE PHYAN IN
MAHARASHTRA & GUJARAT
CYCLONES AFFECT ALMOST ALL PARTS OF INDIA.
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WHY CAT INSURANCE PENETRATION IN
INDIA IS LOW
• POOR AND CANNOT PAY PREMIUM - MOSTLY AFFECTED
• LOW OR MODERATE INCOME GROUP – CAN PAY PARTIALLY
• UPPER SEGMENT – CAN PAY FULLY - A COMMERCIAL PROPOSITION FOR
INSURANCE SECTOR.
• ABSENCE OF SPREAD OF RISKS – CAT EVENTS OCCUR ONLY IN THOSE
AREAS PRONE TO SUCH PERILS.
• SELECTION AGAINST INSURERS – PEOPLE RESIDING OUTSIDE CAT
ZONES DO NOT NORMALLY BUY INSURANCE.
• AT PRESENT PENETRATION OF CAT INSURANCE IN INDIA IS
< 0.5% AS COMPARED TO TURKEY AT 17%.
8
DISASTER MANAGEMENT
• EX-ANTE: BUDGETARY ALLOCATION FOR MITIGATION
BUYING INSURANCE OR OTHER FINANCIAL PROTECTION
• EX-POST: DECISION STAGE AFTER A DISASTER WHEN
RECOVERY, RECONSTRUCTION AND OTHER FINANCIAL
DECISIONS EG. TAX INCREASE, LOANS ETC. MADE
• SCOPE OF POSSIBLE ACTIONS AT STAGE TWO
INFLUENCES DECISIONS AT STAGE ONE
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EX-POST V/S EX-ANTE SOLUTIONS
• SOME COUNTRIES PROVIDE COMPENSATION TO PROPERTY
OWNERS BY STRUCTURAL ARRANGEMENTS – COMPENSATION
FUNDS OR ADHOC DISBURSEMENTS AFTER EVENTS.
• OTHER COUNTRIES LEAVE PROTECTION OF PRIVATE PROPERTIES
TO INSURANCE COMPANIES. EX-POST APPROACHES HAVE SEVERAL
LIMITATIONS VIZ. SLOW COMPENSATION, UNBEARABLE FISCAL
BURDEN ON STATE, DIVERSION OF RESOURCES FROM TARGETTED
BENEFICIARIES / DIVERSION FROM OTHER PROJECTS.
• THEREFORE, EX-ANTE (PREVENTION AND MITIGATION) MEASURES
MAY BE THE BETTER OPTION.
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WHO CAN ASSIST : BOTH EX – ANTE & EX - POST
 PUBLIC AUTHORITIES (CENTRAL & STATE GOVTS.)
 NGOs
 CAPITAL MARKETS
 INSURANCE
THE MAGNITUDES INVOLVED REQUIRE A PARTNERSHIP APPROACH
AND INSURANCE CAN PLAY A VITAL ROLE.
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ROLE OF INSURANCE / REINSURANCE
RISK ASSESSMENT AND UNDERWRITING (MANDATORY MEASURES):
• ENSURING EXISTING AND UPCOMING INDUSTRIAL ASSETS AND
INFRASTRUCTURE ARE DISASTER RESISTANT.
• MAKING INDUSTRIAL PROCESSES AND PROCEDURES INHERENTLY
SAFE.
• ENSURING THAT TRANSPORTATION, STORAGE, HANDLING AND USAGE
OF CHEMICALS AND OTHER HAZARDOUS RAW MATERIALS DOES NOT
POSE A THREAT TO NEARBY AREAS AND ENVIRONMENT.
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ROLE OF INSURANCE / REINSURANCE….
RISK ASSESSMENT AND UNDERWRITING (MANDATORY MEASURES)….
• CONDUCTING MOCK DRILLS PERIODICALLY TO TEST THE EFFICACY OF
THE DM PLANS.
• DEVELOPMENT OF ON-SITE AND OFF-SITE DISASTER MANAGEMENT
PLANS BY INDUSTRIES IN ASSOCIATION WITH THE DISTRICT
ADMINISTRATION.
• MOVE AWAY FROM A RELIEF CENTRIC APPROACH TO A PRO-ACTIVE
METHODOLOGY THROUGH RISK MANAGEMENT MEASURES AND CAPACITY
BUILDING OF INDUSTRIAL PERSONNEL
• NETWORKING KNOWLEDGE ON BEST PRACTICES AND TOOLS FOR
EFFECTIVE DM.
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ROLE OF INSURANCE / REINSURANCE….
• EFFECTIVE RISK ASSESSMENT INVOLVES –
 BUILDING CODES
 STRUCTURAL PARAMETERS
 CONSTRUCTION OF EMBANKMENTS ETC.
 ONCE DONE, BEST MANAGED RISKS TO GET COMPREHENSIVE CAT
INSURANCE AT DISCOUNTED PRICE.
• MEASURES HAVE TO BE SUPPORTED BY CENTRAL & STATE GOVT.
BY WAY OF CERTAIN MANDATORY REQUIREMENTS LIKE
 PERIODICAL OVERHAUL OF DRAINAGE SYSTEM
 EARTHQUAKE PROOF CONSTRUCTION ETC
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ROLE OF INSURANCE / REINSURANCE….
CATASTROPHE INSURANCE – MANDATORY?
 SOME COUNTRIES SUCH AS TURKEY (EQ), ICELAND & SWITZERLAND INSURANCE COMPANIES HAVE TO MAKE CAT INSURANCE AVAILABLE BY
MANDATORY OFFER OF COVERAGE THAT CAN BE DECLINED BY POLICY
HOLDER.
 OTHER COUNTRIES – INSURANCE COMPANIES ARE REQUIRED BY LAW TO
INCLUDE CAT RISK – AUSTRALIA (TERRORISM), BELGIUM & FRANCE (NAT
CAT, TERRORISM), NEWZEALAND (EQ), NORWAY & SPAIN.
 INDIA – FLOOD COVER AVAILABLE AS PART OF PROPERTY INSURANCE
BUT CAN BE OPTED OUT. TERRORISM CAN BE TAKEN AS ADDITIONAL
COVER.
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ROLE OF INSURANCE / REINSURANCE….
PRICING – DISASTER INSURANCE
• RISK BASED – FLAT : DEPENDING ON VOLUMES, FINANCIAL CAPACITY
OF INSURER, POTENTIAL TO RETAIN ON NET AND RI PROTECTIONS.
• EXPOSURE ANALYSIS – PART OF PRICING – THIS INVOLVES
 CONCENTRATION OF RISKS / VALUES.
 EQ AND FLOOD AGGREGATES – REGIONWISE /PINCODE WISE.
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ROLE OF INSURANCE / REINSURANCE….
PRICING:
• UNFORTUNATELY ACCURATE DATA OF CAT PERIL PREMIUMS ARE NOT
AVAILABLE AS EQ COVERS ARE OPTIONAL AND RATES VARY ZONE WISE.
FLOOD RISKS CAN BE EXCLUDED IF THE INSURED SO DESIRES.
ONE THEREFORE, NEEDS TO WORKOUT THE CAPACITY AVAILABLE BY
LOOKING AT THE RATIO OF PAST LOSS EXPERIENCE TO GDPI. BASED ON
THE GUJARAT CYCLONE OR THE MUMBAI FLOODS AS A % OF THE GROSS
PREMIUM (GUJARAT CYCLONE- 12%, MUMBAI FLOODS - 11%), ONE COULD
ASSUME APPROXIMATELY 18% BEING THE STRAIN OF ANY ONE CAT EVENT
ON THE INSURANCE PREMIUM OF THE MARKET.
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ROLE OF INSURANCE / REINSURANCE….
CAT MODELLING :
• A TYPICAL CAT MODELLING SOFTWARE PACKAGE CONTAINS
INFORMATION ON THE PROPERTIES BEING ANALYSED CALLED
‘EXPOSURE DATA’ WHICH CAN BE BROKEN INTO THREE GROUPS –

SITE (STREETS / PINCODE / CRESTA ZONES)

PHYSICAL CHARACTERISTICS OF THE STRUCTURE
(CONSTRUCTION, OCCUPANCY, AGE, HEIGHT ETC.)

FINANCIAL TERMS OF THE INSURANCE COVERAGE, (VALUES,
LIMITS, DEDUCTIBLES ETC.)
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ROLE OF INSURANCE / REINSURANCE….
• BASED ON THE ABOVE INPUTS, THE MODEL ESTIMATES THE MAXIMUM
LOSS ASSOCIATED WITH AN EVENT OR SET OF EVENTS AND THE
PROBABILITY OF REPETITION OF SUCH EVENTS (RETURN PERIOD).
• THE MODEL HELPS INSURER’S UNDERWRITING STRATEGY AND HOW MUCH
REINSURANCE TO PURCHASE.
• INTERNATIONAL RATING AGENCIES – AM BEST AND S&P USE CAT.
MODELLING TO ASSESS THE FINANCIAL STRENGTH OF INSURERS WHO
UNDERWRITE CAT RISKS.
• SUCH EXPOSURE ANALYSIS BY ALL INSURERS IN THE MARKET WOULD
PROVIDE AN ACCURATE PERSPECTIVE OF AGGREGATES IN THE COUNTRY
AND THE QUANTUM OF INSURANCE REQUIRED TO BE PURCHASED AS WELL
AS THE RATE AT WHICH THE PRODUCT SHOULD BE PRICED.
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ROLE OF INSURANCE / REINSURANCE….
CAN CAT RISKS BE COVERED BY INSURANCE COMPANIES ON THEIR OWN ?
DOES THE INDIAN MARKET HAVE SUFFICIENT CAPACITY TO PAY FOR SUCH
EVENTS?
• IF THE MUMBAI FLOODS OF 2005 ARE TO BE CONSIDERED AS A
BENCHMARK WITH A MARKET LOSS IN EXCESS OF RS. 3000 CRS., THE
INDIAN MARKET CAPACITY (RETENTIONS OF INSURERS) IS CERTAINLY NOT
ADEQUATE, AND HERE REINSURANCE PLAYS A VITAL ROLE IN SUPPORTING
THE MARKET.
•
MODELLING TECHNIQUES THEREFORE ARE AN ESSENTIAL TOOL FOR
ESTIMATION OF EXPOSURES.
• INSURANCE COMPANIES, DEPENDING ON THEIR FINANCIAL STRENGTH
AND RETENTION CAPACITIES PURCHASE SPECIFIC CAT EXCESS OF LOSS
PROTECTION FROM REINSURERS.
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ROLE OF INSURANCE / REINSURANCE….
•
INSURANCE COs, APART FROM PURCHASING THEIR SPECIFIC CAT XL
REINSURANCE PROTECTIONS CAN ALSO CONTRIBUTE THEIR
CAPACITIES TO FORM A CAT INSURANCE POOL, THE BROAD
FRAMEWORK OF WHICH WOULD BE:
 All AOG CAT PERILS
 MANDATORY COVER UNDER PROPERTY INSURANCE
 AGREED PREMIUM RATES
 COMPULSORY PARTICIPATION BY THE ENTIRE MARKET
 GIC RE AS THE MANAGER WOULD SUBSEQUENTLY PROCURE XL
PROTECTION IN EXCESS OF THEIR OWN RETENTION.
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THE ROAD AHEAD--• DISASTER MANAGEMENT, BOTH EX-ANTE AND EX-POST
COLLECTIVE RESPONSIBILITY OF VARIOUS STAKEHOLDERS
DEMANDS
• A GOVT. INSURANCE SCHEME UNDER WHICH PAYMENTS ARE TRIGERRED
BY PARAMETRIC CRITERIA WHERE NO NEGOTIATIONS ARE REQUIRED,
COULD PROVIDE FOR MORE RAPID DISBURSEMENT OF FUNDS FOR
RECONSTRUCTION.
IN SUCH SCHEMES INSURERS WOULD ENFORCE MITIGATION MEASURES
SUCH AS COMPLIANCE WITH BUILDING CODES, REGULAR DRAINAGE
OVERHAULS, CONSTRUCTION OF EMBANKMENTS, PRESERVATION OF
MANGROVES, ETC.
• INCORPORATING AN INBUILT PA COVER INTO THE POLICY, AS NAT CATs
IN THIS PART OF THE WORLD INVOLVE CONSIDERABLE BODILY INJURIES
AND FATALITIES.
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THE ROAD AHEAD--• KEY CONSIDERATIONS –
 SHOULD CRITICAL UTILITIES SUCH AS POWER LINES BE PLACED
UNDERGROUND?
 CAN MUTUAL SUPPORT AGREEMENTS BE REACHED WITH NEIGHBOURING
COUNTRIES TO PROVIDE HUMAN AND MATERIAL SUPPORT NEEDED TO
REBUILD CRUCIAL INFRASTRUCTURE SUCH AS POWERLINES, TELEPHONE
LINES & CELLULAR TOWERS, ROADS ETC. ?
 CAN WE EMBARK ON A PARTNERSHIP PROGRAMME WITH THE
GOVERNMENT TO MAKE CAT INSURANCE COMPULSORY WITH STRICT
MANDATORY REQUIREMENTS (BUILDING CODES, ETC..) MENTIONED
EARLIER, TO ALSO INCLUDE THE “CANNOT PAY INSURANCE” SEGMENT
INTO THE BROAD SOCIAL OBJECTIVES OF THE COUNTRY?
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THE ROAD AHEAD--• KEY CONSIDERATIONS –
 CAN WE INTRODUCE A “DISASTER CESS” ON THE “UPPER SEGMENT – CAN
PAY” SECTOR OF THE ECONOMY, TO BUILD UP A CAT FUND FOR
EMERGENCIES? THIS COULD FORM PART OF A PROPERTY TAX ON ALL
PRIVATE OWNED PROPERTIES. BUT FOR LOSS OF LIFE OF THE POOR
SEGMENT, THEIR FIELDS, CATTLE, HUTS AND CONTENTS, THE
GOVERNMENT COULD CREATE AN INSURANCE FUND FROM ALL STATES
AND COMPENSATE A FEW UNFORTUNATE STATES.
 CAN WE INTRODUCE “DISASTER MANAGEMENT SKILLS” FOR BOTH AOG AS
WELL AS MAN MADE CATASTROPHES AS A SUBJECT IN EDUCATION AND IN
EXECUTIVE TRAINING PROGRAMMES OF CORPORATES?
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THE ROAD AHEAD--• KEY CONSIDERATIONS –
 CAN WE LOOK FORWARD TO DIGITALISED MAPPING OF THE ENTIRE
COUNTRY IN THE NEAR FUTURE THAT COULD ENSURE MORE ACCURATE
ESTIMATION OF EXPOSURES? SUCH MAPPING APPARENTLY IS BEING DONE
TODAY IN COUNTRIES LIKE FRANCE, UK, GERMANY, SINGAPORE ETC..
• OVER TIME, THE ABOVE WOULD ALLOW THE COUNTRY TO REDUCE THE
REQUIRED QUANTUM OF DISASTER INSURANCE COVERAGE AND
ASSOCIATED PREMIUM COSTS AS THE INFRASTRUCTURE AND RELATED
BUSINESS ACTIVITIES BECOME ROBUST AND LESS AT RISK OF LOSS FROM
A NATURAL DISASTER.
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