Premium for flood risk cover to cost more

They said the reinsurers may increase the loss deductibles to quote a lower rate to cover catastrophic risk. In the case of Kerala floods, the loss will be higher under the motor insurance portfolio as the state has a sizeable number of costly vehicles, they added. A reinsurance company is the insurer for primary insurer that insures properties and lives of people.

Loss deductibles are the amount of loss that a primary insurer has to bear from its own pockets while anything above it is borne by the reinsurer. “Incidents of floods in India seems to be regular in recent years. The reinsurers may ask the primary insurers to manage the risk with their premium rates. If the primary insurers want a catastrophic insurance cover, then the reinsurers may levy higher deductible to cut down on his own losses in case of flood losses,” a senior insurance industry official said on condition of anonymity.

“The deductible will vary from primary insurer to insurer based on their loss experience,” he added. “Floods seem to be a regular occurrence in India. We saw that in Uttarakhand, J&K, Chennai and other places. So, the reinsurers may increase the deductibles,” another expert opined.

“The reinsurers may increase their rates and also the deductibles. But the premium rate for the policyholders may not be increased by the primary insurers on their own. They have to get the insurance regulator’s nod,” KK  Srinivasan, a former Member of Insurance Regulatory and Development Authority of India (IRDAI) said. 

An expert said there had been instances in the past where general insurers rejected a claim on the pretext that insurance policy covers flood loss caused naturally and not floods due to opening of dams/reservoirs by the government after due warning. 

“However, the IRDAI nipped this concept in the bud. Normally, the policy covers the risk of floods and inundation without specifying the causes,” a former IRDAI official said.