Global reinsurance giant Swiss Re has collaborated with Indian primary insurance carrier Tata AIG General Insurance Company Limited to provide a parametric monsoon coverage for India’s northeastern state of Nagaland.
Working with the Nagaland State Disaster Management Authority (NSDMA), Swiss Re will provide the reinsurance capacity to support a parametric excess rainfall insurance product to cover this year’s monsoon season.
The parametric insurance cover is designed to protect the State of Nagaland treasury’s balance sheet, as well as to enable Nagaland to increase its fiscal resilience against natural disasters.
Nagaland is a small Indian state located to the east of Assam and west of Myanmar. A largely mountainous region where agriculture is the main contributor to the local economy, Nagaland experiences high levels of humidity and heavy rainfall through the monsoon months of May to September.
Because of this the region is susceptible to damage caused by heavy rainfall, windstorms, hailstorms, flood and landslides, pwhich are especially prevalent during the monsoon season.
The parametric insurance transaction, backed by Swiss Re’s reinsurance capacity, offers coverage for excess rainfall events that can lead to severe flooding.
The trigger has been constructed using a geospatially gridded dataset, with precipitation levels derived using satellite observation.
The parametric coverage provides protection across the entire state of Nagaland through six distinct zones, and features a stepped payout structure to ensure funds can be allocated where losses occur and in proportion to the amount of recorded rainfall, to mirror its impact.
Commenting on the parametric monsoon insurance Johnny Ruangmei, Officer on Special Duty at NSDMA, Government of Nagaland said, “The developmental building blocks and investment that the Government or community has put in for many years can be shattered in less than 15 seconds by a natural catastrophe. Disaster is no longer “IF” but “WHEN”. Therefore, investment in risk transfer is a prudent investment, cardinal to sustainable development.”
Madhukar Sinha, EVP for Government & Rural Business at Tata AIG added, “We hope this unique initiative of Nagaland State Government would create awareness across the country on management of catastrophic risks through insurance. Since severity of catastrophic losses are very high, in my opinion, insurance is a far more superior and effective option for risk transfer than any other options available for the purpose. Tata AIG is committed to provide innovative insurance solutions on weather-related catastrophic risks.”
G Satish Raju, from Swiss Re said, “This is Swiss Re’s first disaster risk financing arrangement in India. Nagaland is a first mover and this transaction marks a positive step towards strengthening India’s resilience to natural disasters. With tropical cyclones Amphan and NIsarga hitting the eastern and Western coats of India in early 2020, the transaction serves as a timely model for other states looking to similar innovative re/insurance solutions that help protect their significant natural catastrophe exposures.”