Flood insurance yet to gain popularity in India
Flood insurance is offered as part of house insurance policy but in recent years, it has gained importance: related
While floods are becoming an annual event in India, causing immense damage to life and property, flood insurance is not popular in the country. It remains a fact that most of the flood insurance policies offered by insurers today provide adequate protection against damage to property caused by floods unlike other categories of insurance and there is a vast choice for people to select to meet their individual needs. For example, an insured can opt for a policy under which he will receive compensation for the damaged property in the rains/floods and even personal belongings are covered. There are also policies suited for individuals as well as businesses. Strangely, however, there is no specific or comprehensive insurance policy that covers only flood- damages. There are standalone covers like home and car insurance, which are based on the analysis of the aftermath of the floods. This is mainly because there are no methods to predict floods, cyclones, or typhoons or measure the damages caused by these calamities. Currently, flood insurance is available with Standard Fire & Special Perils Policy and Householders Insurance Policy. Fire insurance typically covers flood damage, inundation, landslides, rockslides, storms and cyclones.
Flood insurance is actually a sub-type of house insurance to cover property that is damaged as water enters a house during floods. It works like other insurance services - like an annual premium, estimated on the basis of risk posed and the choice of deductibles. The insured gets compensated for the damage caused by flood waters entering the house.
Kotak Mahindra General Insurance’s Head, Multichannel Distribution Jag jeet Siddhu had explained this in an interaction: “Various insurance covers include storm, tempest, flood, inundation, landslide, rockslide, earthquake etc. Earthquake is available as an add-on under Standard Fire and Special Perils policy. Under MSME products like Sookshma Udyam/Laghu Udyam Suraksha, the same is available as an inbuilt cover. Another important add-on is debris removal, as flood waters carry a lot of debris/silt and involve costs for its removal. Dewatering expense is also available as an add-on. These add-ons are offered with sub-limit.”
Since floods also damage vehicles, there are comprehensive motor insurance policies that cover damage to vehicles due to floods.
According to Vivek Chaturvedi, CMO and Head of Direct Sales at Digit Insurance, in addition to a comprehensive cover, people living in areas prone to floods must consider buying add-ons like engine and gear box protection cover, zero depreciation cover, consumable cover, road side assistance cover, and most importantly return to invoice cover.... “Buying add-ons like return to invoice cover can help you get the amount mentioned on the invoice, not just the vehicle Insured Declared Value (IDV),” he says.
PART OF STFI COVER
Insurance companies in India consider flood as a peril and is therefore a part of the larger ‘STFI’, or Storm, Tempest, Flood and Inundation, cover, which includes cyclone, typhoon, hurricane and tornado and the premium is fixed at a specific rate as prescribed by the regulator. And the insured can also decide whether he or she wants to have the ‘STFI’ peril included in their fire or house-holders policy. STFI is a named peril in the standard IRDAI products like Bharat Udyam Suraksha Policy, Bharat Sookshma Udyam Suraksha and Bharat Griha Raksha Policy.
Generally, all policies would have ‘STFI’ peril included within the Standard Fire & Special Perils policy and the insured can avail the flood insurance benefit as part of their Fire or Householder policy. The claim settlement process follows the standard claim process of the fire policies where the insured needs to notify the insurance companies in case of damage due to flood and final settlement is based on the assessed damage to the insured.
Having said this, most insurance pr o f e s s i o nal s a dvocate that home insurance with riders to cover damages due to rain and floods is an essential investment, especially for people residing in flood-prone areas. This policy not only protects the homeowner’s property and
belongings but also offers a safety net during times of crisis.
SELF-INITIATION OF CLAIMS
In a country like India, flood claims are often self-initiated as there is generally no one to help a victim to initiate the claim. As a mitigation measure, the IRDAI has instructed insurers to set up 24x7 helplines immediately after floods but the onus continues to be on the victims to initiate the claims. They have to compile information immediately and collect proof of damage by way of pictures and initiate correspondence with the insurance company.
The cost of flood insurance varies depending on the location and the level of coverage. The policy includes structural damage to the home, such as the foundation, walls and roof, as well as damage to the contents of the home, including furniture, appliances, and personal belongings. Additionally, if a flood forces one to evacuate your home, the policy may also provide coverage for temporary living expenses.
HIT FOR INSURERS
Some of the estimates are mind-boggling. It has been established that general insurers took a massive hit of about `50 billion due to claims post-2015 floods with the motor segment accounting for the highest. The total number of claims including all categories received by the general insurance companies then was about 50,000.
What about the loss resulting from damage to agriculture due to floods? Normally, the focus is on damages caused to the infrastructure, but floods also destroy crops.
SAVING AGRI LOSSES
In the last few years, there has been a broader effort to reduce flood losses through planning, regulation and early warning systems. One such effort is the Index-based Flood Insurance, or IBFI, which is described as a cost-effective solution and targeted post-disaster relief, especially to compensate agricultural losses. Developed by International Water Management Institute (IWMI) with the support from CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS) and Water, Land and Ecosystems (WLE) and Ministry of Agriculture, Forestry and Fisheries (MAFF, Japan), IBFI aims to develop effective payout schemes for low-income, floodprone communities. It integrates hi-tech modelling and satellite imagery with other data to predetermine flood thresholds - which could trigger speedy compensation payouts. Effective end-to-end solutions are being developed in collaboration with several organizations and experts from Central and State government bodies, private insurance firms, community-based organizations. It is expected that IBFI can help smallholders better manage their production risks.
IBFI as a project has been implemented in select districts in India, Nepal and Bangladesh.
MISCONCEPTION IN THE US
What is the status of flood insurance in developed countries? In the US, it is a general feeling among homeowners that they do not need flood insurance. Reports indicated that only about 5% to 15% of homeowners have it, even though 99% of the counties in the U.S. are impacted by flooding. Also, there is an element of ignorance among homeowners, who believe they are already covered for flood damage by their homeowners’ policy. Without flood insurance, one could face a major financial disaster if his or her home gets hit by a flood.
A flood insurance policy in the US covers an insured’s house and his belongings for flood-related damage. It is separate from a homeowners insurance policy, which usually does not cover flood damage from problems like hurricanes and torrential rain. Flood insurance can cover events like storm surges, inland flooding, such as rivers and streams overflowing during a storm and flash floods.
Normally, a flood insurance policy Has 2 parts - dwelling and contents. One can purchase a building-only policy, a contentsonly policy or both.
COVERING EVERY BUILDING
On the other hand, in Germany, the insurance industry has the wherewithal to insure almost every building in the country against flooding. It wants to do this through the private sector, based on its own regulations and its own risk assessments and price calculations. Homeowners in the country are free to decide whether or not they want to take out insurance. The industry, however, believes that the state should take care of the appropriate preventative measures but that it should not open the coffers after each flood and use taxpayer money to provide financial support for the uninsured.
Insurance density for natural hazards throughout Germany is at under 50% against insurance density in the new business, which stands at 70% and higher.
It is an established fact that homeowners in the country remain underinsured against extreme weather events. About 2 years ago, devastating summer floods killed more than 180 people in western Germany, but only 52% of houses in the country are covered by a natural hazards’ insurance. Horst Nussbaumer of at insurer Zurich, says: “People were quick to forget extreme weather events, a phenomenon that I call ‘flood dementia’.
However, these floods were the most serious natural disaster in the country for the insurance industry, which paid out 6.7 billion of the 8.4 billion euros in total damage for property insurance. The government also spent billions on support payments, thus compensating for the fact that many of those affected were not insured. Several German states have called for compulsory natural hazard insurance. Insurance companies, however, insist that the Government must do more to prevent floods and adapt to climate change more generally.