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National Insurance Academy proposes to cover high-risk areas with mandatory natural calamity cover

National Insurance Academy (NIA) has proposed to make natural catastrophe (NatCat) cover compulsory in highly vulnerable and disaster-prone areas, with a view to reducing the impact of any natural calamities in the future and building resilience.

The proposed NatCat cover must cater to region-specific needs considering climate change, urbanization, and hazard risk vulnerability, by developing a single peril customized NatCat peril insurance.

This is going to be a huge collaborative effort involving government, insurers, reinsurers, brokers, and intermediaries as per NIA’s report on ‘Enhancing Insurance Inclusivity and Bridging the Protection Gap in India.’

The proposed solution mandates that commercial organizations allocate a certain percentage of revenue every year towards climate change or DRR (disaster risk reduction), exploring the possibility of ‘CAT bonds’ for additional funding capacity. It also mooted compulsory crop insurance for loanee farmers, supported by financing from microfinance institutions and Agri-input suppliers, implementation of parametric-based insurance, and embedded insurance solutions for scaling up property insurance in India.

As per 2022 Swiss Re data, India currently faces a 95% NatCat protection gap, and it is likely to increase with rising climate risk exposures, infrastructure development, and rural-to-urban migration. As per Munich Re, 91% of NatCat losses are triggered by weather-related perils, increasing volatility and complexities in reinsurance.

It is suggested to focus on lower-income and less-educated segments for better insurance awareness and leveraging technology and analytics, through collaborations with insuretech, for personalized services and customized home insurance with NatCat risk protection and value additions like home security, maintenance, and repair services.

Insurers can offer coverage against these disasters and cross-sell/up-sell to existing customers for revenue growth and loyalty improvement, and to address emerging risks by developing climate and cyber insurance as top-up covers under standard fire insurance or property insurance for both individuals and corporations.

Adding that claims services can be enhanced through satellite-based hazard risk and loss assessment using remote sensing and geospatial technologies.

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