In Asia – Pacific zones we are all witnessing unprecedented frequency and severity of Natural Catastrophe like Japanese Tohoku Seaquake Tsunamis causing financial losses of US$ 309 Blns out of which insured losses were of US $ 36 Blns.
The Thailand Floods – really speaking a deluge left another blow of Natural Catastrophe.
The Uttarakhand Floods wiping out the Temple Towns of Kedarnath and many more towns of pilgrimage in the region!
The cyclone Phailin and latest Hurricane Haiyan have played havoc! Nature’s Fury and Men’s war against Nature are not co-incidental but Nature’s Fury is consequential to Men’s violations of Nature!
The Acts of God Perils both SEISMIC and STIF are ‘Insurable’ so long as they are ‘Reinsurable’! Now Global Reinsurers’ approach alters as results faulter!
Perhaps the Creation of Acts of God Perils Market Pool seems to be a viable alternative.
In the light of underwriting data of year 2011 and trends of 2012 an attempt is made here to make conceptual presentation of Indian Market Nat Cat Pool.
B) Natural Cat Perils :-
SEISMIC: Earthquake ] Volcanic Eruptions ESTVL
PERILS: Seaquakes ] Land Slides
WEATHER : StormBush Fires STIF
PERILS: Typhoons Forest Fires
Weather Perils Cata Events can be predicted but Seismic Perils Cata Events cannot be predicted to prevent or minimize at least loss of Lives!
Accumulations of Risks in such Natural Cat Events are almost unknown – Uncontrolled and Unlimited and therefore reinsurers tend to cap the Event limits !
In fact seemingly ‘uninsurable’ Natural Cat Perils in Property Risks become ‘insurable’ by Reinsurance Protections !
However, Reinsurance Markets are also becoming more Conservative, Cautious, Selective, Restrictive and Prohibitive to write Individual Insurer’s Natural Cat Perils insurances in various classes of Fire / Eng / Motor O.D. / Misc Accident etc.
– Current Market Trends are changing with Annual Aggregate Loss Recovery Limits of EQs in all Proportional Treaties.
– XL Treaties are preferred to Proportional Treaties as Event of Loss Limit is fixed in XL Treaties.
Insurers have to prepare Property Risk’s Aggregate Exposure details State-wise and also major City-wise in each State in the Indian Context.
C) Operational aspects of the Proposed Pool
i) The Pool Covers only Fire, Engineering, Motor O.D. Risks.
ii) Insurance companies will cover these risks as usual but with Min. Rating Levels to be prescribed by the Pool’s Underwriting Committee.
iii) Insurance Companies have to work out Notional Premiums in respect of MD/LOP Cover in Fire when other than EQ Perils rates are not specified. Similarly in respect of Machinery Break-down / Consequential Loss and DSU Covers for ALOP Notional Premiums are to be worked on.
iv) Insurer have to make Oblig. Cessions to the GIC Re and balance to the Pool without any retentions.
iv) Pool’s Accounts Dept will handle remittance of losses to Companies where clients suffer in the events of losses of Natural Catastrophe.
v) Pool’s Profits should be made Totally Tax Free as Profits of Today are Funds to meet future losses of Natural Catastrophe.
vi) Pool’s Administration to be looked after by GIC Re.
Various Committees for the Pool’s Administration may include members of Insurance Companies to look after Underwriting, Rating, Accounting, Reinsurance Protection etc.
vii) Administrators fees and commissions on Premium ceded to pool by member companies are to decided by respective committees of the pool.
ix) Share Percentage of Member Companies should be decided as per Premium Volume Ceded by the company as a percentage of Total Premium Income of the Pool.
x) Pool is not a Separate Insurance Company and IRDA’s approval of the creation of the Pool may be on the lines similar to the Indian Market Terrorism Pool.
India’s Map Separately for Seismic Zones, Cyclonic Zones, Flood Zones etc are prepared and risks located in there zones are to be assessed for accumulations data.
Greater the Information better it is for Reinsurers will be inclined more towards writing Market Pools created by Insurers for Acts of God Perils in various classes of Fire, Engineering, General Accident, Motor O.D. etc.
xi) Reinsurance Protection of the Pool
– GIC Re and U/W Committee of the Pool will organize Reinsurance Protection of the pool by an XL Programme only for NAT CAT Perils covered in Fire /Engg / Motor O.D.
– The U/W and Accounts of Pools Reinsurance Protection will be managed by the Administrator GIC Re.
– With largest Premium base the Pool will be in a better place to arrange Reinsurance Protection with Adequate Limits and Adequate Costs.
– The Aggregate Exposure Data Risk Profiles, Large Loss Information will be compiled and updated every year by the pool’s U/W Committee.
Rating of Nat Cat Perils Risks
In the detariffing scenario EQ rates are specifically mentioned but Rates to Cover other NAT CAT Perils are not specified. As a result EQ Premiums can be calculated but other NAT Cat Perils premiums need to be notionally fixed by underwriters of Insurance Cos. in India.
The NAT Cat Premiums for Fire and Engineering Classes with specified rates or notional basis are to be determined out of the Total Premium of Fire & Engineering Classes.
D) Conclusion :-
Concrete structure of the Indian Market Pool for Acts of God Perils can be suggested only after data of aggregate exposures state-wise for the sub-continent of India along with Metro
City wise data of exposures of Acts of
God Perils giving most reliable data
of accumulation of risks in events of
Cata losses. The reinsurance protection of the Pool has a market by XL R/I programmes.
The Pool As Disaster Management Tool
– The Pool will play significant role as Disaster Management Tool for NAT CAT Perils covered in Indian Insurance Industry.
– Compilation of Market Nat Cat Risks data
– Large Risks class-wise data of Catastrophic exposures and experience
– Nat Cat losses and lessons learnt from past event of losses
– Loss Survey Reports on market basis of information
– Prompt settlements of claims after a Catastrophe
– Overall services of relief for victims and sufferers of property damages
The creation of Indian Market Pool for Acts of God Perils Risks is perhaps the best solution for the future of Indian Insurance Industry which may set an example for other Markets in Asia and Africa to follow.
Author-K. L. Naik