Embedding insurance products into Disaster Management Policy

1. Role of Insurers & Reinsurers in achieving the objectives of National Policy on Disaster Management Embedding insurance products into Disaster Management Policy August 11, 2010

2. Presentation Path Impact of Disasters Segmentwise Approach Implementation Roadmap

3. Impact of Disasters - Property Risks • Industrial Risks • Loss or damage to Fixed Assets like Buildings, Plant & Machinery, Furniture & Fixture, etc • Loss or damage to stock in godowns, in transit and at manufacturing sites, etc • Consequential losses • Non-Industrial Risks • Loss or damage to Household property, Motor Vehicles, Shops, Offices, Hotels, Educational Institutes, etc

4. Impact of Disasters - Personnel Risk • Death or permanent disability • Loss of earning capability for self & family • Loss of Health • Temporary : Fracture, injury, etc or outbreak of diseases post catastrophes • Chronic : Exposures to toxic materials leading to chronic illness • Unemployment • Agricultural risks • Crop • Livestock

5. Worldwide Disasters – Insurance Contribution Source : Swiss Re Sigma • The proportion of insured losses in underdeveloped and developing Economies tends to be even lower

6. Disasters in India – Insurance Contribution Source : Market information • Low insurance penetration impacting Public finances

7. Funding Disaster Relief • Government Relief Funds • Various forms of local and international aid • Pooling arrangements • Partly subsidized by Government • Insurance / Reinsurance • Alternative Risk Transfer solutions • Index based instruments

8. Presentation Path Impact of Disasters Segmentwise Approach Implementation Roadmap

9. Risk profiling Severity High • Typical disaster event profile of disaster prone areas • Typical disaster event profile of non-disaster prone areas Frequency Low Frequency High • Disaster events do not have this risk profile Severity Low

10. Segment : Property Risks Severity High • Micro-asset insurance (Indonesia) • Cat Bonds (Japan) • Terrorism Risk Insurance Pool • Fire insurance • Nuclear pool Frequency Low Frequency High Severity Low

11. Indian Terrorism Pool • Target Segment • Insuring population • Perils Covered • Terrorism • Managed by GIC • Coverage • Property Sum Insured subject to maximum liability as defined in the pool agreement • Risk transfer through voluntary domestic reinsurance and international reinsurance

12. Japanese Catastrophe Pool Program • Target Segment • Householders • Perils Covered • Earthquake, Volcanoes, Tsunami • Managed by Government • Coverage • 30-50% of SI for Fire subject to maximum of 60 Mn Yen per risk (equi. INR 32 Mn) • Various percentages of claim amount payable by the Government depending on the size of claim • Risk transfer through Cat Bonds

13. Indonesian micro-asset insurance • Target Segment • Low income households • Perils covered • Floods • Managed by Insurance Company backed by International reinsurers • One Manggarai Protection Card costs 50,000 Indonesian Rupiah(IDR) (equi. INR 260) and guarantees a one-off payment of IDR 250,000 (equi. INR 1300) if waters rise to or above 950 cm at the Manggarai Water gate in Jakarta

14. Property insurance – Policy Measures • Significant underinsurance prevalent • Corporate • Lower sum insured taken by choice with consequential losses largely not insured • Adequacy of insurance verified through Audit certification • Personal lines • Significant under penetration – for e.g. in home insurance and shopkeeper insurance • Quantification through Registration authorities, Property / Municipal tax authorities, Home Loan data • Control through Banks and registration authorities

15. Segment : Personnel / Agricultural Risks Severity High • Central American Government securitization scheme • Accidental Risks Frequency Low Frequency High • Health insurance risks (RSBY / Aarogyashree) • Weather insurance Severity Low

16. Weather Insurance • Target Segment • Indian Farmers • Perils Covered • Rainfall Deficit • Managed By • Governments with Indian Insurers • Coverage • Index based trigger - benefit policy • Quick release of funds thereby providing speedy relief • Mandatory for loanee farmers

17. Central American Govt. Securitization • Target Segment • Central American Government • Perils Covered • Earthquake • Managed By • Reinsurance major • Coverage details • Payout based on the size of the population affected by a specific earthquake • For example, $1 million of donations or government funds can be used to secure contingent disaster relief funds in the amount of $45 million • Risk transfer to capital markets • through securitization

18. Personnel Insurance – Policy Measures • Government subsidy for Weather insurance and life & health coverage of BPL population • Measures for exposure evaluation • collection of data on population density • modeling its vulnerability in various disaster event scenarios • Agriculture risks • Crop underinsurance evaluated through Government land records and loanee farmers

19. Presentation Path Impact of Disasters Segmentwise Approach Implementation Roadmap

20. Key enablers • Product Innovation • Enrollment a key challenge given the dispersion of insured members • Smartcard based technology providing a breakthrough • Policy measures to encourage insurance through paperless technology • Efficient servicing of insurance scheme • Ability to collect, store and use data through intelligent data mining techniques • Government efforts at building infrastructure for better risk management • Risk Zoning of Areas

21. Thank you