The year 2023 began for the industry with a promise of growth. The regulator has been very active in de-cluttering the complex rule-based ecosystem, delivering on ease of doing business. The 3-pronged approach, Availability, Accessibility and Accessibility, adopted by regulator to drive the goal of Insurance for all has also created a very positive momentum.
However, while the industry regained its growth momentum, the year 2023 was also difficult due to very high losses from natural disasters (Nat CAT) and increasing frequency of flood and cyclones that affected various parts of the country making us realize the impact. on climate change and testing society’s preparedness, said Hitesh Kotak, CEO India, Middle East, Africa at Munich Re.
India, a land of diverse landscapes and cultures, is also exposed to a wide range of extreme weather-related events. For example, 27 of the country’s 29 states, along with seven union territories, face recurring natural disasters. Cyclones, earthquakes, landslides, floods and droughts are common occurrences. Heavy rains, which often lead to deadly floods and landslides, further aggravate the situation.
“Vulnerable communities are often affected disproportionately, adding a social dimension to natural disasters. With potential losses likely to grow, more effort must be made to provide financial protection and resilience to the vulnerable section of society,” he added.
According to reports, in the Asia-Pacific region, natural disasters resulted in total losses of approximately $7 billion, with only approximately $3 billion covered by insurance.
The situation is much worse in countries where insurance penetration remains low, such as in India. In addition to the loss of life, these disasters seriously threaten the economy of the country, especially with the protection gap apparently growing over the years and uninsured losses remaining high.
According to Munich Re data, the ratio of Nat CAT losses in India that are insured has remained in the low single percent level.
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According to Kotak, although parametric insurance may already be making headway across various states in India, it is still important to continue to improve awareness of these solutions. Further use of solutions such as Parametric insurance and renewable energies can be expected in 2024, he said.
Increased in popularity over the years in the coverage of weather-related risks, parameter insurance focuses on covering the financial impact of certain events, paying according to a predefined scheme e.g. a certain magnitude of earthquake or rainfall over a period of a few days, bypassing lengthy claim adjustment processes.
In itself, parameter insurance has a number of significant advantages over traditional compensation-based insurance: Claims payouts can be triggered as soon as specific parameters are met; and it can be easily tailored to suit different climates and topographies – an important aspect in a country as geographically diverse as India where different areas may require tailored solutions.
Today, about 300,000 to 400,000 microfinance borrowers in India enjoy the benefits of parametric insurance coverage. This number underlines the positive impact of these initiatives and highlights the potential for further expansion, the reinsurer emphasized.
Other positive trends in 2023
The general insurance business has seen significant growth in 2023, driven by motor, health and crop insurance. The industry has engaged with various stakeholders including government and regulator, to support reforms aimed at increasing insurance coverage.
“Some of the interventions such as universalization of crop insurance by few states have been very helpful. The industry, with the cooperation of Insurers and Reinsurers, has introduced new products such as battery performance guarantee or solar PV cell performance guarantee to support the growth of renewables energies. In addition, solutions for emerging threats like cyber insurance have been developed. Parametric solutions for micro and small finance customers can play a key role in making insurance coverage accessible to everyone in India,” he added.
Outlook for 2024
According to the CEO of Munich Re India, In 2024, industry growth is expected to continue especially in motor and health insurance. Infrastructure growth will continue to drive the Engineering Line of Business and recently introduced Warranty solutions. Cyber coverage will continue to be sought after by the customers. The protection gap is unfortunately likely to remain wide; however, we expect further usage of solutions such as Parametric insurance and renewable energies.