As normalcy slowly returns to Uttarakhand, we are likely to see a deluge of insurance claims. It is too early to estimate the amount of claims for all the insurers including individuals and companies.
The biggest losses are expected to come from hydro-electric power plants; New India Insurance has received six claims so far. About 245 projects in the area have suffered some damage, although many of them are small.
Low coverage
The claims may not be proportionate to the magnitude of the disaster which is estimated to be over Rs 5,000 crore in direct losses incurred by Uttarakhand and Himachal Pradesh.
India’s insurance penetration level of 3.4 per cent for life was lower than the global average of 3.8 per cent in 2011. Further, penetration levels have been falling in the last few years.
For non-life, India’s levels were only a quarter of the global average of 2.8 per cent.
Sanjay Datta, Chief, Underwriting and Claims, ICICI Lombard General Insurance, points out that while natural catastrophes in India have caused losses to the tune of $2 billion (around Rs 9,000 crore) during 2004-2011, 85 per cent had not been insured.
As insurance penetration levels in India are low (0.7 per cent in the non-life segment), he expects that insured losses would be considerably smaller compared to economic and human losses.
Additionally, insurance density, measured as a ratio of premium to population, is abysmally low in both life and non-life segments.
As of 2011, the levels were $49 (Rs 2,200) and $10 (Rs 450) for life and non-life respectively, compared to the world average of $378 and $283.
But the Mumbai floods in 2005 were an exception. The claims in this instance were much higher because of extensive damage to private property and its high density of non-life insurance coverage.
It was considered a large catastrophic event from an insurance perspective, the estimated claims settlement was around Rs 2,900 crore.
Easing hurdles
Settling claims requires many procedures to be fulfilled and waivers are typically given in the event of catastrophes, where documents are lost and local authorities cannot confirm deaths.
During the Mumbai floods, companies such as ICICI Prudential offered spot settlements on minimal documentation.
The company received 1,500 property damage claims, amounting to about Rs 200 crore, and 70 per cent of these were settled in under a month due to the simplified procedure.
Speedy settlements
Expediting claims settlement is another challenge.
For example, after the Gujarat earthquake in 2001, the four top insurers received over 40,000 claims in the first 50 days. Companies typically deploy various teams on the site to expedite voluminous claim handing. In the Uttarakhand episode, Bajaj Allianz Life Insurance has formed a special team at the company’s head office at Pune to handle cases on priority and has trained its agents to help the aggrieved with paperwork.
The high claim settlement ratio, which is the number of claims that were settled out of every 100 claim requests, for most insurers provides additional comfort. In 2011-12, LIC settled 97 per cent of the claims, while the number stood over 90 per cent for others such as ICICI Prudential, HDFC Standard, SBI Life, Bajaj Allianz and Kotak Mahindra Life.
LIC has also been settling claims fast with a majority of the pending claims open for less than three months.
Bajaj Allianz cleared around 23,000 or over 94 per cent of its claims within 90 days in FY13.
Financial Resource
An insurer who is not financially sound may have issues in making claim payments if there are large amount of claims to be settled. Regulation mandates that the solvency ratio, which gives the ratio of assets to liability, be 150 per cent.
Companies such as Bajaj Allianz have a ratio of 643 per cent, providing a cushion for unexpected liabilities.
Insurers are also mandated to re-insure 5 per cent of their liabilities with General Insurance Corporation (GIC).
General insurers are believed to have increased the overall amount of liability they had re-insured (and hence off their books) compared to last year, as the pool of re-insurance provider has increased.
Life insurance premiums are not likely to be affected due to claims. According to Bajaj Allianz, as natural disaster or epidemic are short-term events, they do not determine premium.
However, ICICI General Insurance indicated that as the claims are yet to be recorded, one cannot determine the eventual impact on premiums.