Climate Change

Indian insurers listed among worst performers in climate sector globally

Cyclone Amphan fetched record insurance damages despite not paying three-fourths of claimed amount

By Jayanta Basu
Published: Thursday 31 March 2022
Cyclone Amphan in West Bengal. Photo: Jayanta Basu

Indian insurance companies are among the worst performers in the world when it comes to covering climate-linked losses, with the lowest rate of insurance penetration across Asia, according to a recent analysis of the global climate insurance sector.

Indian insurance companies have, in fact, failed to pay close to three-fourths of the claimed amount for Cyclone Amphan, the devastating cyclone that flattened the Sundarbans in West Bengal during May 2021. This is despite them releasing record amount of insurance claims for any natural disaster.

“Record insurance payment despite not paying about three-fourths of the claimed amount underlines the enormity of damages,” a senior official of the West Bengal disaster management department told this reporter March 30, 2022.

A spate of recently published climate reports by the Intergovernmental Panel for Climate Change (IPCC) have pointed out that India is one of the most climate-vulnerable countries globally. These have added that India is likely to incur further economic losses due to extreme weather events.

Below 10%   

A recent report prepared by environmental platform Climate Trends has pointed out that Indian insurance companies were “among the worst performers ... scoring below 10 per cent for the quality of their disclosures.”

Their disclosures were assessed against the recommendations made by the Task Force on Climate Related Financial Disclosures (TCFD). The report is based on an Ernst & Young review of climate disclosures from global insurance industries across the world.

The TCFD was formed in 2017 by the G20 Financial Stability Board to create a consistent set of recommendations on how companies can analyse and disclose climate-related impacts for their businesses, which have now become the gold standard of climate disclosure by companies.

“Insurance companies from Colombia, India, Kazakhstan, New Zealand, Russia, Saudi Arabia and the United Arab Emirates were among the worst performers, scoring below 10 per cent for the quality of their disclosures,” the report read.

It added: “Insurance companies from Australia, Canada, Germany, Japan and the United States were the leading performers in terms of quality of disclosures, scoring between 50 per cent and 60 per cent.”

“Climate risks are evolving rapidly and getting increasingly complex … insurers will not have the luxury of working in silos,” Praveen Gupta, former managing director and chief executive officer of Raheja QBE General Insurance Co Ltd, said.

“Indian insurers have been laggards when it comes to incorporating climate risk assessment in their investment and underwriting decision-making process … Insurance Regulatory and Development Authority of India (IRDAI) needs to bring in sensible regulations to mandate climate risk modelling by insurers and repricing of premiums,” an insider in the climate insurance sector, not wanting to be named, said.

Laggard India  

The latest report prepared by IRDAI shows that 14,575 insurance claims were made on Amphan damages, amounting to a gross value of Rs 1,767 crore during 2020-21.

Of these, 11,512 claims were settled till June 30, 2021, amounting to Rs 471 crore, the highest for any extreme weather event in India during 2020-21 and also one of the highest-ever in country.

The Telangana flood with a Rs 330 crore claim — of which Rs 151 crore was realised — and Cyclone Nisarga, which had hit Maharashtra in June 2021, with a claim value of Rs 290 crore — Rs 93 crore of which were realised — were next in the list after Amphan.

“In 2020-21, the maximum numbers of insurance claims out of the total in India were due to damages caused by Cyclone Amphan, which caused immense impact in eastern India including West Bengal,” Aarti Khosla, director of non-profit Climate Trends, said.

She added: “This was despite India having the lowest rate of insurance penetration across Asia.”

“The Amphan data shows that while about 80 per cent of the claims were settled, only about 26 per cent of total claimed money was paid, indicating major claims have remained unsettled,” an insurance expert said.

The insurance payment trend seems to be similar for other weather events in the country as well.

“Flood risk in India is quite pronounced but insurance companies bore less than 10 per cent of the actual losses during the Kerala floods in 2018,” Saon Roy, a visiting professor in Indian Council for Research on International Economic Research, said.

As a matter of fact, during 2020-21, about 70 per cent of total claims worth Rs 2,559 crore made under various catastrophes in India remained unpaid. 

According to a recently published UN report — prepared by the IPCC’s Working Group 2 — India was found to be one of the most vulnerable countries in the world to climate-induced flooding, heat stress and droughts.

“Research predicts that climate change could reduce India’s gross domestic product (GDP) by around 2.6 per cent by 2100, even if the global temperature increase is held below 2 degrees Celsius,” warned the Climate Trends report.

A 2021 Germanwatch report on global climate risk showed that during 2001-19, India was globally second in terms of loss in GDP — expressed in percentage — due to climate change.

“IPCC’s latest report calls for a pronounced focus on stepping up climate risk insurance, given the risks are set to breach all thresholds. CEEW research has found that more than 80 per cent of Indians live in districts vulnerable to climate risk,” Abinash Mohanty, programme lead, Council on Energy, Environment and Water (CEEW), a non-profit, said.

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