Soon, domestic insurance companies will get a cushion for covering natural catastrophes with the sole domestic re-insurer General Insurance Corporation forming a Natural Catastrophe Reinsurance Pool for the Afro-Asian region.
The pool, which is formed in collaboration with Federation of Afro-Asian Insurers and Re-insurers (FAIR), will be backed by 14 insurers and re-insurers from the region with an initial capacity of $21 million.
Ashok Kumar Roy, Chairman and Managing Director of General Insurance Corporation (GIC Re), said there are serious challenges facing the Afro-Asian insurance industry in dealing with natural catastrophes and predicting future losses.
The pool will provide initial capacity to 196 members of FAIR, including four Indian state-owned public insurance companies New India Assurance, Oriental Insurance, United India Insurance, and National Insurance.
The pool will provide defined liability reinsurance coverage which will help insurance companies spread the risks from large catastrophic claims.
“The rate and terms will be decided by the lead re-insurer based on which we will decide the percentage of capacity that the pool can provide to the insurer,” said Roy
The pool has been created in the background of increasing number of natural catastrophes in the Afro-Asian region and subsequent hardening of natural catastrophe rates in the reinsurance market.
Indian catastrophic risk can also be covered under the pool. The insurance industry is estimated to have received claims of Rs 1,500 crore this year relating to Uttarakhand flash floods.
Not for private insurers
The four public sector general insurance companies will be able to seek reinsurance support from the pool for covering catastrophes risks. However, currently, private general insurance companies cannot seek reinsurance coverage from the pool as they are not members of FAIR.
“Normally, if any catastrophe occurs anywhere in the world, the rates go up for everybody. But with a pool, even if there are catastrophes outside the region, insurance companies in the region can seek reinsurance coverage at a lower cost,” said Roy
The pool is expected to start underwriting business from early next year.