Methodologies for measuring Insurance Effectiveness for ... · Crop Insurance- Approximately 15% of...

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Methodologies for measuring Insurance Effectiveness for CAT Risks with illustrations from Crop Insurance. Dr. S. Doss, Faculty, National Insurance Academy, INDIA

Transcript of Methodologies for measuring Insurance Effectiveness for ... · Crop Insurance- Approximately 15% of...

Methodologies for measuring Insurance Effectiveness for CAT Risks with illustrations from Crop Insurance.

Dr. S. Doss, Faculty, National Insurance Academy, INDIA

Methodology

Multi-dimensional Assessment ◦ Risk Assessment, Financial, Administrative &

Operational measures, Socio-economic and Technology assessment

Key Stakeholders Assessment Risk Mitigation measurement Suggestions

Dimensions for insurance effectiveness 1. Insured Loss Vs Economic Loss 2. Inclusive spread of insurance to the population. 3. Availability of suitable products 4. Pricing strategy of the product 5. Operational effectiveness ◦ Insurers Initiatives for process effectiveness ◦ Institutional Support ◦ Government, Intermediaries, Reinsurance, & Technology

6. Stakeholders Perception Index 7. Risk Mitigation measures 8.Socio-Economic measures .

Insured loss vs Economic loss 1. Global Economic Losses & Insurance Losses;

$192 billions (2013) & $45 billion 2. Study indicates that Many Asian countries are

underinsured. Globally 17 countries are underinsured for CAT Risks. Ex: India -85% of losses are not insured.

3. In India (2014), Hail storm damages to horticulture and Field Crops is Rs.40000 Crores. What is the insured loss?...

Inclusive spread of insurance 1. Insurance Penetration is very minimum (.60)

2. Statistics of Number of farmers covered and Total Farmers.

1. Crop Insurance- Approximately 15% of the farmers covered (25 Millions farmers covered out of a total of 140 Millions).

3. Number of farmers benefited out of total farmers 4. Suggestions for increasing the Insurance Penetration

1. Develop customized products rather than generic or package products 2. Governments to make CAT Risk Insurance Compulsory 3. Make premium rates affordable to farmers and low income householders

apart from increasing the penetration among public and private institutions. Govt. Subsidy would help in improving the penetration.

4. Increase the penetration through new micro channels – KBS, SHG, Satellite / Micro Office (One man Office). CSC – IT Channels, Rural Sarpanch, Etc.

Availability of suitable products • Stand alone- Customized Products/ Region specific products are not

available. • In Crop Insurance, only generic products (Yield / weather based)

are available as against the range of perils; • Examples: Crop insurance we know that crop risks vary with Agro-

Climatic zone-wise/ Crop wise • There are 75 agro-climatic zones in India. • Example: loss Ratio- region wise/Crop wise • In particular Zone- certain crops are risky • Ex: Gujarat-cotton, Karim Nagar(AP)- Paddy, Maharastra- Grapes &

Mango. • Suggestions- development of customized MPCI products with the

help GIS (Satellite based imaginaries to monitor and validate agricultural crop conditions) .

• No exclusive products for Vegetables Crops, Horticultural Crops & Floriculture Crops.

• Suggestions: Increase Availability, Accessibility, Affordability and Acceptability.

Review of Premium Rates 1. Existing premium rates- High premium rates 2. Actuarial premium rates need to be developed

for viability and reinsurance support – High – needs Govt. Subsidy

3. Government subsidies (state & central) 4. Repository of data- Quality & Quantity of CAT

risk data is currently inadequate. 5. Suggestions: Develop Parametric or Risk Based

Pricing, Web Based underwriting using Exclusive Portals which are integrated to certain publically available sources like NIC, Agricultural Ministry, Metrological Depts, AWS, Remote Sensing Dept.

Operational Effectiveness 1. Wider gap between actual risks of the farmers and what

products cover. 2. Benefits are not adequate meeting the farmers - Insurance

coverage is based on input cost or loan amount, no revenue loss. 3. Moral hazard is higher - Non-loanee farmers - Multiple coverage from different banks for the same crop or cultivation & discrepancies in Area insured, etc. - Late announcement of cut off dates for insurance coverage by the states. 4. Assessment of crop yield or actual loss (poor data of crop damage) - wider gap – Remote sensing - GIS Technology can help in this. 5. Develop Portfolio Risk Management for better underwriting Use of technology in Yield assessment, Loss Assessment, Claim Settlement, etc.

Portfolio Risk Assessment – G’Nut

Portfolio Risk Assessment – Groundnut

Beneficiaries perception index: 1. Farmers perception survey ( Sample Market Survey): covering

their actual need, risks cultivation pattern, irrigation facilities available, types of crops grown, input costs vs loan amount, awareness about insurance products, perception about premium and benefits, claim settlement process, assessment of loss etc.

2. Survey of Insurance Executives to understand the reasons for low penetration, coverage, their awareness campaigns, product-customer needs Gap, claim settlement process, issues encountered in managing moral hazard, underwriting and loss assessment, etc .

3. Survey of government officials to seek information about their risk mitigation plans, changing economic & demographic profile, urbanisation, climate change implications, support in using GIS – Remote sensing technology, premium or claims subsidy, infrastructure developments, and implementation plans, etc.

4. Survey of Intermediaries to understand about issues relating to distribution channel development – micro channels, NGO, Housing and Cooperative Societies, Common Service centre, etc.

Risk Mitigation measures:

Global Risk Mitigation Model to meet CAT Risks in Asia

Normal Catastrophic events can be managed through direct or traditional insurance solutions

High or Above moderate events requires Reinsurance solutions

High magnitude events requires the support of ART and Risk Pools

NAT CAT POOL - Proposed Model

Common Account XOL Protection

Cedant 1 Member 1

Fair Nat Cat Reinsurance

Pool

Cedant 2

Cedant 3

Cedant 4

Member 2

Member 3

Member 4 Pool Adminstrator

Acceptance on Non-Prop Cat XL Programs of Member – Non member Companies

Retrocession to FNCRP Member Companies and other FAIR Members with built in Common A/c XOL Protn

Suggestions Increase Insurance awareness among General Public

through Publicity Campaigns, workshops & Seminars, etc.

Increase the participation of Public and Private Partnerships which would help in improving the insurance penetration

Build Catastrophic event specific Data Repository covering the frequency and severity of losses based on historical events in Asia at least for last 50 years.

Mandatory Insurance through compulsory participation of private and Public business houses in the Urban areas located in High Risk Zones – Municipality can collect the insurance premium through property tax collections

Suggestions… Develop Multi-Peril parameterized Index

products Complete insurance coverage for Critical

Infrastructure and Public Utilities: Airports, Railways, Highways, Hospitals, Schools, Ports, etc.

Enlarge the scope of Public Liability Insurance Act to cover all critical infrastructure and large business houses where mass public access is possible.

Indicators / criteria for assessment

1. Insurance Penetration – Increased penetration would put less pressure on government support.

2. Recent Studies indicate that Many Asian Countries are underinsured. Globally 17 countries are underinsured. India-85% of the losses (2004-2011) were uninsured.

3. Insurance Programs are inadequate in meeting Disaster Risk Management.

4. No attractive insurance programs. 5. High Insurance Premium rates

Need for assessment of insurance Programs

1. Devastating and cascading negative Impact on the economy of the Asian Countries.

2. Economic losses - last 5 years

3. Increasing trend of Disasters due to:

a) Rapid urbanisation (Recent disaster at TN)

b) Environmental Degradation (Uttarakhand Flood, June 2013)

c) Climate Change – Drought (El Nino effect)

d) Natural and man-made disasters including Increasing incidents of Terrorist attacks.

Mitigations of Disaster Risks (risk financing) 1. Relief Fund- Inadequate, adequate support for

normal, Adhoc basis, Improper methods of assessment of loss.

2. Insurance – Basic and First Level Support 3. Reinsurance – Second and Higher Level Support 4. ART – Risk Transfer through CAT Bonds 5. Risk Pool – Natural Catastrophe Pool in India

1.Need to get information GIC Re NATCAT Pool

Need for assessment of insurance Programs

1. Devastating and cascading negative Impact on the economy of the Asian Countries.

2. Economic losses – $192 billions

3. Increasing trend of Disasters due to:

a) Rapid urbanisation (Recent disaster at TN)

b) Environmental Degradation (Uttarakhand Flood, June 2013)

c) Climate Change – Drought (El Nino effect)

d) Natural and man-made disasters including Increasing incidents of Terrorist attacks.

Mitigations of Disaster Risks (risk financing) 1. Relief Fund- Inadequate, adequate support for

normal, Adhoc basis, Improper methods of assessment of loss.

2. Insurance – Basic and First Level Support 3. Reinsurance – Second and Higher Level Support 4. ART – Risk Transfer through CAT Bonds 5. Risk Pool – Natural Catastrophe Pool in India

1.Need to get information GIC Re NATCAT Pool