The risks India faces

India is one of the world’s most disaster-hit countries.48 lakh Indians suffer losses in disasters each year, worth Rs. 64,000 crore in total. India is also the most flood-prone country.The Global Climate Risk Index 2018 lists India as the 6th most vulnerable nation to the impact of climate change, so these crises will only worsen in impact.

The problem of low insurance penetration

Yet India is also remarkably under-insured.Non-life insurance penetration is under 1% (and property insurance penetration is barely a tenth of that).The north India floods of 2013 caused damage worth Rs. 9,000 crore, of which only Rs. 3,800 crore was insured (these are all insured losses, of which insured property damage losses were a fraction).

The economical solution

Currently, the large uninsured base means people rely on government aid for rebuilding. UNISDR noted that India had nearly 20 major disasters in 2015, costing the government over Rs. 20,000 crore. Under the 14thFinance Commission, India pledged to invest around Rs. 58,000 crores on disaster management. It could be argued thatthe government could protect people more economically by subsidising home insurance instead.

TheNational Disaster Management Agency (NDMA) has recommended making property insurance mandatory for residential properties in urban areas. If the government is to subsidise home insurance, some options include a RERA-linked universal insurance scheme mandated for every new development. Alternatively, the government could work directly with insurers to subsidise affordable home insurance, with premiums collected alongside property tax, perhaps even funded through programmes like Smart Cities.

Assuaging fears

One reason for low penetration is that people fear the claims process in a crisis will be complicated, as infrastructure is damaged. However, with new operating procedures and technologies, insurers can quickly set up field offices in disaster-hit areas; claims can now be made by phone; and forms are stored digitally so that damaged documents don’t hold up claims. Drones allow quick damage assessment, and insurers may even relax some procedures to enable quick settlement. One way to streamline claims could be for compensation to be paid out as soon as an independent regulator declares an emergency, instead of a property-by-property survey.

By helping people lower costs and offering credible assurances about claims handling, insurers and the government could yet popularise home insurance, the potential solution to India’s growing climate risk.