Kerala floods: A lesson in insurance penetration or the lack of it

Only 5% of the total economic damage is covered by insurance in Kerala

Kerala Alappuzha flood Vehicles submerged by the flooding in Alappuzha | AP

With the floods in Kerala subsiding, the extent of the devastation that was caused has begun to emerge. According to initial estimates, the heavy rains and the subsequent floods caused an economic loss of close to Rs 20,000 crore. However, insurance claims may only amount to about Rs 1,000 crore,say industry officials. 

Insurance is a severely underpenetrated sector in India as many people just don't see a need to buy a policy. So, in Kerala, a large part of the bill will have to be footed by the state government or the people themselves as they had no insurance.

“India suffers from a typical underpenetrated insurance market. The rough estimate is around Rs 20,000 crore economic damage (in Kerala). Out of that, only about 5 per cent gets covered... It could lie anywhere between Rs 500-1,000 crore,” Sanjay Datta, chief of underwriting, reinsurance and claims at ICICI Lombard General Insurance Company, told THE WEEK

It was a similar case in past disasters, too, for instance, the floods in Chennai in 2015. There was a lot of damage to property and automobiles then, too, and a lot of it was not insured; so economic losses would have been much more than insured losses. Executives of insurance companies say that typically after such natural disasters, the enquiries go up a lot, but only a few end up buying insurance, once normalcy returns.

“We have noticed that during natural calamities, the economic losses in India are much more than the insured losses. This is mainly due to lack of awareness among people about importance of insurance and their ‘nothing will happen to me’ attitude. We have seen a spike of inquires about insurance, but the conversion rate is very low,” Sasikumar Adidamu, chief technical officer at Bajaj Allianz General Insurance told THE WEEK

Insurance companies say incidents like the floods in Kerala once again show why it is advisable to insure yourself and the precious belongings as it will protect you and your family members from any financial setback in case of any illness/injury or loss of life and or property. 

“The victims of such disasters suffer big financial loss and for most of them, it drains out their entire life savings. Individuals with insurance are indemnified of the losses by their insurance company giving relief in terms of the financial losses,” pointed out Easwara Narayanan, COO of Future Generali India Insurance.

Making insurance cover mandatory for people also may not be a solution as can be seen from motor insurance segment, where despite it being compulsory to have your vehicle insured, many still don't bother to renew their insurance policies. Companies have started long-term auto insurance policies, which would help to an extent. But, that may not be enough.

Datta of ICICI Lombard says there is a need for the general risk awareness to go up among people, and this would have to be an ongoing effort on the part of insurance companies and the government. Efforts from the government, like the wider rollout of the health insurance scheme by the central government, could also help insure more people and raise awareness. 

Insurance companies have eased their claims settlement process and special teams have been formed in order to reduce the hassles of those who were insured and were affected by the floods that caused wide-spread damage in Kerala.

The maximum number or claims are projected to be reported in motor, followed by property and personal acciden, said Narayanan of Future Generali.

In the wake of the calamity, which claimed hundreds of lives and caused a lot of damage across the state, the Insurance Regulatory and Development Authority of India (IRDAI) had called upon the companies to simplify processes and settle claims expeditiously.

Many companies have set up dedicated helpline numbers, web links, apart from team of experts that will help in addresses the issues faced by people when filing insurance claims.

“A special team has been formed to handle the claims and efforts have been made towards instant resolution related to insurance and claims related queries,” said Adidamu of Bajaj Allianz General Insurance.

He further added that sizable manpower had been deployed from within and outside Kerala in order to administer the claims faster and resources were also being moved from the head locations to enable faster approval and disbursement of claims.

“We relaxed our claim settlement process and will require only minimum documentation from the claimant to resolve their request. The claimant needs to provide a filled claim form along with KYC (know your customer) details, bank account details to credit the claim amount and a death certificate issued by a municipal body or a report by police or armed forces,” Edelweiss Tokio Life Insurance said.

The private sector insurance provider added that if the claimant was unable to furnish a filled claim form, a simple letter of request would also suffice. It intends to settle claims within 24 hours from receipt of the documents. 

Bajaj Allianz Life Insurance Company also said wherever death certificate issued by registrar of births and deaths was not available, the company would accept the certified list having name of life assured issued by either government hospitals or police or government authorities or armed forces involved in rescue operations.

State-owned general insurance companies, too, have simplified their claims settlement processes. The companies under the umbrella of GIPSA (General Insurers Public Sector Association of India) have put systems in place that would ensure smooth and expeditious settlement of claims.