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insurance: Insurers may get aid to deal with nature’s fury


New Delhi: A parliamentary panel is set to suggest policy measures for the insurance sector to equip it to deal with the impact of natural calamities on large infrastructure projects, people familiar with the matter told ET.

The standing committee on finance-headed by former minister of state for finance Jayant Sinha has considered issues around reinsurance following complications in insurance claims related to the Teesta Stage III Hydropower project in Sikkim that was washed away by a glacial lake outburst. The power project, which was completely washed down by a glacial lake outburst flood, was insured for ₹ 11,400 crore by a consortium of insurers, including a public sector entity, but reinsurers capped the payout at ₹500 crore. They cited the contract that provided compensation would be limited to ₹500 crore in the event of glacial lake outburst flood (GLOF). Policymakers in the government are worried that this could pose a serious issue for large infrastructure projects and other hydropower projects. Insurance premium for infra projects have already gone up. “We have to come up with policy solutions for such situations,” said one of the persons, pointing out that insurance companies did not have large capital reserves and could not price in such risks. As per a recent industry report, around 498 catastrophic claims are outstanding amounting to ₹1,640 crore.

The industry has been pushing for the introduction of parametric insurance to cover catastrophic or CAT risks. It has already represented to the sectoral regulator, Insurance, Regulatory and Development Authority of India, IRDAI, on the issue, a senior industry executive, who did not wish to be identified, told ET.

Insurers may get Aid to Deal with Nature’s Fury

“Considering a coverage of 50% through parametric insurance solutions, we have a potential of above ₹10,000 crore of premium which will ensure 10 times coverage,” he said.

Parametric insurance is essentially a type of insurance that provides insurance against a specific occurrence in which payout is linked to the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy.

The committee, in its report to be submitted this week, is likely to suggest measures based on global best practices to both the regulator and the government. It is also likely to make recommendations on open architecture and whether commercial vehicles should be mandated to undertake insurance.

The bill is still in the discussion stage.


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