‘RAINSTORMS- FLOODS- DELUGE’… ARE INSURABLE?

The current scenario in 90% of the Sub-Continent of India in the months of July-August 2019 reveal an outrageous form of Acts of God perils of Rainstorms- Floods- Deluge…. Since 2013-14 to 2019-20, these Natural Catastrophe Perils have been playing havoc every year in various parts of the Sub-Continent of India. A question arises: “How to treat these AOG Perils as Insurable or Reinsurable when no revisions in premiums are ‘adequate’ to cover these perils occurring every year with unprecedented severities and frequencies?” Rating of the Risks covering these AOG Perils is a big challenge! When such catastrophes occur every year, how to have a Rating on Payback Period bases? How to consider Burning Cost Concept in Rating Risks with such a challenging scenario? The basic question that arises is whether these AOG Perils have remained Insurable and Reinsurable by National Insurance Industry as well as National and International Reinsurance Industries worldwide? All remedial measures have proved to be insufficient! Not only in India but in entire Asia, these perils pose same scenario! Africa is also not spared with Cyclone IDAI of March 2019, spreading from Mozambique to Zimbabwe, Malawi and Madagascar. The flooding has been in Mozambique with River Buzi playing havoc with 1.7 million people as victims of the disaster and the aerial views described the floods as “Inland Oceans extending for Miles and Miles.” All corrective measures to cap NAT CAT Events of Less Limits, reduce commissions with NIL Profit Commissions etc. in Proportional Treaties and even CAT Excess of Loss Treaty Programs with overall pay back periods of up-to 20 years etc. in Non-Proportional Treaties with not more than One Reinstatements and that too with 125% Reinstatement Premiums for bottom layers of Excess of Loss Treaty Programs. All such have proved to be ‘insufficient’. Thus, time is ripe to reconsider with the Golden Rule- “Back to The Basics!” Rating of Risks in Direct Insurance is pricing a Risk’s Insurance Protection before ‘COSTS’ of all factors are known! Burning Costs reveal after a Catastrophe! Theoretically, adequate premiums may not be affordable by average clients! Any revised THESIS becomes ANTI-THESIS! ‘Normal’ conditions of Markets may allow some relaxed norms but conditions are becoming ‘Abnormal’. There appears to be a Two-Fold Solution: Firstly: All NAT CAT AOG Perils should be covered only by the Disaster Management Mechanisms of Central and State Governments and Insurance/ Reinsurance Companies are to be agencies to implement such Disaster Management Schemes. Alternatively, Natural Catastrophe Perils Insurance Scheme is worked out and all concerned: Insureds, Intermediaries, Insurances, Reinsurances and Regulators work out a longer lasting solution with Uniformly Adequate Rates for Life and General Insurance classes such as Property, CAR-EAR, Engineering, Goods in warehouses, Motor OD, Health and Crop Insurances etc. Secondly: A NAT CAT Market Poolmay be created with compulsory membership of all the market players with various provisions…

• Uniform adequate Rating of AOG Perilswith payback periods of not less than 10 years in Direct Insurances- Life and General Insurances of Property, CAR-EAR, Engineering Goods in warehouses, Goods in Transit, Motor Own Damage, Health, Crops etc.
• No Competition in Direct writing of NAT CAT Perils Risks.
• Reinsurance Protection of NAT CAT Market Pool by only Excess of Loss Reinsurance Treaty Programs with overall payback periods of not more than 10 years and Reinstatement Premiums more than 100% of XL Premiums for the bottom layers.
• No Proportional Reinsurance Treaty Programs for the NAT CAT Market Pool!
• There should be a way out for Insurers as members of the NAT CAT Market Pool to insure State Government to protect damages to persons and properties by NAT CAT Perils where local people cannot afford insurances and Insurers pay to the State Governments as Insured Entity on behalf of this large section of people.
• The Sub-Continent of India’s regions are to be classified into Flood-Prone zones and Safe Zones. There shall be compulsory Insurance for AOG Perils in every zone. This will increase overall premium base for entire Sub-Continent.
• Global Reinsurers act as One ‘UNO’- United National Organization of Global Reinsurances.
• In Japan, the Earthquake Insurance scheme provides for JER- Japanese Earthquake Reinsurance Corporation. On similar lines, NAT C AT Reinsurance Company can be formed to reinsure the NAT CAT Pool and then retrocede to Global Reinsurers.
• The State Governments have Disaster Management Organizations which can have better Risk Management through Loss Prevention/ Minimization Associates educating all Risk Carriers.
• Historical Temples, Forts Heritage Sites should be brought within Insurance Protection. This is imperative after what happened to Kedarnath Temple in floods during 2014-15.

Let us under-take innovative thinking process to find remedies to these NAT CAT Disasters! When a disaster occurs, Management Disaster Scenario becomes visible! We must mobilize all resources for a very effective NAT CAT Disaster Management. Risk Financing Solutions by Financial Reinsurances, ART products of various types besides traditional and conventional Insurances and Reinsurances needs to be implemented. Multi-line Multi-year Insurance and Reinsurance products are to be considered with Finite Risks Solutions. Thus a fair combination of conventional Insurances and Reinsurances and innovative products of Alternative Risk Transfer Technologies are to be considered for a ‘Realistic And Longer Lasting Solutions’ to the problem of covering AOG Perils. Climate Changes and consequent phenomena of Natural Catastrophes are to be effectively met. The World Bank links Catastrophe and Pandemic Risk Financing Solutions and extends helps to countries with high exposures to Natural Catastrophes. Such financial supports can be utilized to make Natural Perils Insurance and Reinsurance Schemes more comprehensive. Authored By: K. L. Naik Director Naik Consultancy & Advisors L.L.P Mumbai