Home Insurance Penetration

To reduce the burden of losses from disasters, there is an urgent need to increase home insurance penetration in the country

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Natural Disasters and Their Financial Implications

India is among the most disaster-prone countries in the world. Over 58% of India’s landmass is prone to earthquakes, over 12% of its land is prone to floods and river erosion, 5,700 kms of its 7,517 kms long coastline is prone to cyclones and tsunamis, and its hilly areas are at risk from landslides and avalanches.

It is a well-recognised fact that natural disasters are a major hurdle for economic development of the country. Natural disasters on an average cause a loss equivalent to 2% of the country’s GDP annually, apart from eroding the gains of development.

Unplanned urbanisation, development within high-risk zones, changing demographics, environmental degradation, and climate change compound the disaster risks in India. Financing of disasters has historically relied on reactive tactics i.e., diversion of funds from budgets. Such post facto financing of disaster losses is inefficient and insufficient too.

Home Insurance: The Need of the Hour

Promoting a financial tool like risk insurance is the need of the hour. Indians have suffered heavy loss from damage to their homes and household belongings. The havoc caused by floods in Mumbai over a decade ago and the floods in Chennai in 2015 were disasters that should have made people to make a dash to insurance companies for insuring their homes. But it has not happened. There is a huge gap between the economic losses and the insured losses arising from disasters. According to a FICCI report, only 11% of the total losses caused by floods in Mumbai, Surat and Uttarakhand were insured.

Awareness about home insurance among the masses is very low. The few who understand do not consider buying insurance to protect their homes. The tendency is to leave it to the governments to bear the cost of compensating the loss. But, the capacity of the governments is strained and it will get further strained, as cities grow bigger.

Home Insurance Penetration Scenario in India

According to Swiss Re’s 2015 Property Protection Gap study, India is among the most under insured countries relative to GDP, with penetration of property insurance as low as 0.07%, against 0.36% in Brazil and 0.23% in Russia.

Home insurance accounts for only about 2% of the total premium collected by general insurance companies in India. The total premium of general insurers in the first nine months of 2016-17 was over ₹ 1,00,000 crore. The insured loss from the 2015 flash floods in Chennai alone was $755 million (over ₹ 5,000 crore), which included loss of life, cars, and commercial property.

Most of those who have bought home insurance in India have taken home loans. Home insurance in their cases was a pre-condition for availing of home loans.

Why Home Insurance Is Important?

With growing vulnerabilities, importance of home insurance too is rising. How can homeowners be made to buy home insurance? One of the suggestions is to make home insurance mandatory in regions that are prone to flash floods, earthquakes, cyclones, landslides, etc. The others include purchase of home insurance compulsory for those availing home insurance and fiscal incentive in terms of tax benefits on home insurance premium.

Low home insurance penetration makes the business a loss-making one for insurers. The risk for insurers will be at acceptable level if homeowners in large numbers buy home insurance. Better penetration of home insurance will distribute disaster risk among the broader society.

The benefits offered by home insurance include:

• Coverage for damage to the structure of your home
• Coverage for household contents including electronic goods
• Rent for up to six months if you have to stay in an alternative accommodation till your home is restored back to liveable condition

The cities are growing. Today we have two cities with 1 crore plus populations. With new homes being constructed and as migration to larger cities increases, in little over a decade India will have more cities with 1 crore plus populations. This will also increase vulnerabilities due to disasters. Home insurance can reduce the burden of losses from disasters. Hence, there is an urgent need to increase home insurance penetration.

References

Vulnerability Profile – National Disaster Management Authority – Government of India (http://www.ndma.gov.in/en/vulnerability-profile.html)

FICCI (http://ficci.in/ficci-in-news-page.asp?nid=10695)

Swiss Re’s study published in an article on Money Control (http://www.moneycontrol.com/investor-education/insurance/classroom/budget-should-closeprotection-gapmore-tax-incentives-5595641.html)

A study on general insurer’s premium published in economic times – (http://economictimes.indiatimes.com/news/economy/finance/general-insurance-industry-grows-to-rs-1-03-lakh-crore/articleshow/57186386.cms)

Sigma study by Swiss Re published in a business standard article – (http://www.business-standard.com/article/current-affairs/flash-floods-in-chennai-last-november-caused-economic-losses-of-2-2-billion-116033000611_1.html)

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