India is a tropical country with a high rainfall rate that causes annual flooding, landslides and hurricanes in many states. Aside from floods and landslides, these natural disasters often result in the loss of property and personal belongings. When it comes to insurance, there is no specific flood insurance coverage, but there are few standalone covers, such as home and auto insurance, that are based on analysis of the consequences of flooding.
“India is a growing economy with a huge population prone to flooding,” said Nymphea Batra, CEO and MD, Guy Carpenter India, adding, “The Asia-Pacific region has historically suffered the most flood-related losses, from only a meager 7 percent are covered by insurance. India, for example, suffered huge $9 billion in flood damage in Maharashtra, Gujarat, Karnataka, etc. in 2019, with only 3 percent covered by insurance.”
“The changing landscape and urbanization in metropolitan areas and sprawling industrial areas pose a complex risk. As assets grow, the Asia-Pacific region, and India in particular, still remains without adequate protection due to low insurance penetration. These factors combine to create a challenging situation and our India flood model will help address these risks. Guy Carpenter is dedicated to working with our clients to help them understand and manage their exposure to natural hazards, particularly those that are poorly modeled,” continued Batra.
When it comes to insurance, there is no specific flood insurance coverage, but there are few standalone covers, such as home and auto insurance, that are based on analysis of the consequences of flooding. This is because there is no accurate mechanism in India to predict floods, cyclones, typhoons or hurricanes in particular well before they strike. Therefore, it is often difficult for insurers to carry out an accurate damage risk analysis due to the lack of suitable raw data.
Flood insurance is currently available with the Standard Fire and Special Perils policy and Home Insurance. Despite the high frequency of flooding, there are no flood specific insurance policies in India.
Batra describes the features and benefits of flood insurance and how it differs from fire and home insurance:
The features and benefits of flood insurance
Flood insurance is generally provided as part of insurance companies’ standard fire and special perils policy, providing coverage against fire and related perils specified in the policy. Flood is a named peril in the policy as part of the larger “STFI” cover which includes windstorm, severe weather, cyclone, typhoon, hurricane, tornado and flood as perils and attracts a certain fixed rate as prescribed by the regulator. This coverage may apply to buildings (including base and foundation), plant and machinery, supplies, furniture, fixtures and fittings and other content.
How is it different from fire and home insurance?
As mentioned above, flood risk is part of the standard fire and special perils policy of insurance companies and would be covered by a standard fire and household policy. However, there is a specific rate for “STFI” perils within the policy and the insured can choose to have the “STFI” peril included in their fire or home insurance. This does not apply to the standard IRDAI products of the Bharat Udyam Suraksha policy, Bharat Sookshma Udyam Suraksha and Bharat Griha Raksha policy where STFI is a named hazard and coverage is standard for all insurance companies except for supplemental coverages provided.
How to claim and what is the claims process like?
Generally, all policies include the “STFI” hazard in the standard fire and special perils policy and standard IRDAI products mentioned above, allowing insureds to claim the flood insurance benefit as part of their fire or household policy. The claims settlement process follows the standard fire policy claims settlement process, which requires the insured to notify the insurance companies in the event of flood damage and the final settlement is based on the insured’s estimated loss.