India regulators say the industry can absorb cat losses; deems a cat pool unnecessary.
The Insurance Regulatory and Development Authority (IRDA) of India has expressed the opinion that the country's insurance industry has sufficient cushion to absorb shocks and large claims of the kind occasioned by the Mumbai floods of 26 July this year.
The insurance watchdog has consequently rejected the idea of developing a catastrophe pool despite the fact that the national reinsurer, General Insurance Corporation of India (GIC), and private non-life insurer ICICI Lombard, have expressed themselves in favour of the idea.
The monsoon on 26 July, that resulted in an unprecedented 37 inches of rain within 24 hours, and produced over Rs30bn ($682m) worth of claims at last count, was the sort of calamity that had both public sector and private insurers talking in terms of a cat pool.
GIC had proposed a cat pool of Rs40bn-Rs50bn because it felt a central cat pool would improve reinsurance buying efficiency and national reinsurance capacity. But IRDA shot down the plan. “At IRDA, we do not see the necessity of a cat pool, since domestic non-life companies can still transfer a major portion of their risks to overseas reinsurance firms,” said IRDA chairman Chellapilla Rao. “Hence, non-life insurers should not have problems covering catastrophe risks for either individuals or large industrial units. In addition, we feel that Indian insurance companies do not have enough data to support such a pool.”
The industry, which had earlier been trying to form an earthquake pool after the Gujarat seismic shocks of 26 January 2003, seems to have hit a roadblock. The earthquake pool was being modelled along the lines of the terrorism pool, set up a few months ago. Referring to the terrorism pool, Rao said, “That was a successful mechanism. However, in the case of floods and natural disasters, reinsurance majors have not been denying reinsurance cover, as they had done in the case of terrorist covers after 9/11. Non-life insurers in India can still transfer their risks, making a cat pool unnecessary.”
Reinsurance rates for catastrophe covers are expected to harden, following large claims faced by major reinsurers like Swiss Re and Munich Re.