Persistent flooding in southern India is expected to result in an economic loss to the country of around $3 billion but, demonstrating the size of the protection gap, just 10% may be paid for by insurance, according to Aon Benfield’s catastrophe modelling unit Impact Forecasting.
Impact Forecasting’s latest monthly update explains that an enhanced North East Monsoon, which it says has been “almost certainly impacted by current El Niño conditions”, resulted in weeks of torrential rain across southern India and Sri Lanka during November and early December.
The resulting flooding has taken a heavy toll, killing at least an estimated 386 people in the states of Tamil Nadu and Andhra Pradesh, which were badly affected. The Chennai metropolitan region in India was particularly damaged by the event, Impact Forecasting said.
Adityam Krovvidi, Head of Impact Forecasting Asia Pacific, commented; “New economic developments in Asia are taking place in flood plains and marsh lands with scant attention to drainage, thus increasing run-off and flooding. The 100-year rainfall event in Chennai exposed the inherent weakness of the one-dimensional nature of this economic pursuit, and highlights the need for serious introspection, implementation of mitigation measures and the redesign of urban landscapes.”
Total economic losses in India have been estimated at INR200 billion (USD3.0 billion). However India’s General Insurance Corporation has reported insurance claims of around INR20 billion (USD300 million), a figure that is not expected to rise significantly and so the impact on reinsurance providers is expected to be minimal at this time.
Once again this clearly demonstrates the size of the insurance protection gap in emerging economies like India, despite their rapid growth and development. Insurance and reinsurance is not keeping pace with economic growth, resulting in a gap that seemingly may widen, before the industry can narrow it.
Krovvidi explained that as Asia develops and cities grow risk analysis and insurance are becoming increasingly vital; “Risk assessment can play a major role in awareness and insurance in mitigating the financial hardships. The large gap between the economic and insured loss from the Chennai flood event further emphasises the need for greater insurance penetration in large industrialized cities in Asia. This will become even more important as Asian megacities continue to grow and the risk of major urban flood events increases.”
Read our series of articles focused on the insurance protection gap – under-insurance in emerging and developing economies, the gap between economic and insurance losses, and transferring risk from public sector to private – the opportunity that is on every reinsurance CEO’s lips and which presents the largest opportunity to put excess risk transfer capital to use, requiring both traditional and capital markets support.