May 8, 2015
Non-life insurers and the industry regulator plan to ask the National Disaster Management Authority (NDMA) to make earthquake-resistant construction codes mandatory for those seeking insurance against earthquake damage.
The move, by the insurers and the Insurance Regulatory and Development Authority of India (IRDAI), is aimed at minimizing potential losses to insurers and re-insurers arising from earthquake damage, reported the Livemint news website citing three people familiar with the development. The call is being made in the wake of the 25 April magnitude-7.9 earthquake that rocked Nepal. More than 7,500 people have died as a result of the disaster and the death toll is expected to rise higher. More than 14,500 people have been injured. Hundreds of thousands have been rendered homeless. While some Indian insurers have an exposure to Nepal’s general insurance market, the General Insurance Corporation of India or GIC Re is the top reinsurer in Nepal, with liabilities of US$160 million in the worst scenario, said Mr Ashok Kumar Roy, CEO of GIC Re. However, the exact extent of its losses in Nepal is still being determined by surveyors. Parts of India were also affected, resulting in at least 70 deaths in Indian territory.
Insurers are keen to push the authorities into making it mandatory for builders, engineers and architects to adhere to earthquake-resistant building codes if the residents of such buildings wish to buy home or property insurance cover at the existing low premiums. At present, the premium for a conventional home insurance policy, including cover against natural and man-made calamities, is as low as INR60-80 per INR100,000 (US$1,575). At the prevailing rates, a 2,000 sq-ft house can be insured forINR3.5-7 million for an annual premium of INR2,000-4,500. If the policyholder buys the cover for 10 years or more at one go, the premium is be even lower as most insurers offer large discounts in such cases.
“Buildings should be made earthquake-proof like in Japan. India should emulate that model and follow earthquake-proof building codes without delay,” said Mr Sanjay Datta, Chief of Underwriting and Claims at ICICI Lombard General Insurance, adding that such codes should at least be made mandatory for earthquake-prone regions. Building codes have already been prescribed in some states but they are not mandatory for builders and developers.
“Insurers should refuse to extend property insurance cover to buildings if the code has not been followed and the property has not been made earthquake-resistant,” said Mr Roy, adding that this message would be put across by insurers to NDMA. “The premium for non-earthquake-resistant buildings should be made 10 times the premium for earthquake-proof properties,” he added. If NDMA accepts the insurance industry’s proposals, it may also help lower losses sustained by the central government, which is forced to compensate for losses in the event of a major calamity as insurance penetration in the country is low.