Floods maroon Chennai, but few opt for calamity insurance

If you see your family member getting injured every now and then, you would tend to stock up on first aid and frequently needed medicines, wouldn't you? Similarly, when you see a growing number of natural and man-made disasters of enormous magnitude striking in the neighbourhood, wouldn't you rush to enquire about the possible insurance options and the costs involved?
Many would, and many did. But the problem is that they stopped right there.

Flood of calls
Hundreds flocked to insurance websites and rang in call centres claim general insurance companies. "The company has witnessed a moderate hike in queries for home, fire or health insurance through the web or call centres post the floods in Chennai," says Sasikumar Adidamu, chief technical officer, non-motor, Bajaj Allianz General Insurance.

Another insurer too confirmed the demand for insurance shooting up after calamities. "During the period of an event like the Chennai floods there is a spike in enquiries and the website traffic is high," says Gunjan Ghai, senior vice-president and national head, branding & marketing and product development at SBI General Insurance.

And these enquiries aren't just from the location which witnessed the calamity such as Chennai or Jammu & Kashmir.

"Typically, most of these queries are either from the same location or from region that resembles the topography of catastrophic region. For instance, after Chennai floods we recorded an increase in the number of queries around home insurance not just from Chennai but also from other coastal areas as well as from Mumbai," says Yashish Dahiya – CEO & co-founder, Policybazaar.com.

Asked which type of products people enquired about, Dahiya said, "Apart from home insurance, car insurance and fire and dwelling products, queries regarding engine protector add-on cover have gone up."

In fact, zero-depreciation add-on cover too has been seeing tremendous demand. "I cannot confirm whether the trend is related to catastrophes, but over a period demand for add-on covers such as zero depreciation has been strong," says Ghai.

In some pockets insurance wasn't on individuals' mind when the calamity struck. It was only after some action by the companies that they reacted. "We have received most queries after SMSes were sent out to customers encouraging them to avail home insurance after the city witnessed flooding and inundation," says Adidamu.

Low conversions
Though insurers get enquiries regarding products immediately after a disaster, they don't translate into purchase. As days pass, enquiries taper down and again resurface when the country witnesses another similar event.

"After an event people get worried and think about insurance, but that doesn't result in actual purchase unless it is happening in their neighbourhood. The number of calls wither off in a month," said Ghai of SBI General Insurance.

Adidamu seconds: "Most of these queries do not result in actual purchase and peter out as time passes."

According to policybazaar.com, insurance companies have been able to convert roughly around 15% of queries during such mishaps.

"While such incidences influences people to consider opting for related insurance policies, it does not have a lasting impact on them and hence, it does not usually go beyond the 'contemplation' stage," enunciates Dahiya.

This is after a year which saw the highest number of catastrophes (189 in 2014) globally as indicated in the reinsurer Swiss Re's SIGMA study released in March 2015. Even then the conversion ratio of calls after catastrophes is pegged at hardly 10%, as per B K Sinha, managing director of Unison Insurance Brokers.

High economic losses
No wonder then that the insurance claims are abysmally low compared to the actual insurance claims received during various natural calamities that struck India during the past decade.

The AON Benfield Catastrophe Recap report of November 2015 estimates Chennai floods economic losses to exceed Rs 20,000 crore, while the insurance claims are anticipated to be in the range of a meagre Rs 2,000 crore. The gap was wide enough during previous events too.

The Chennai floods saw several motor insurance claims, but hardly any for home insurance. M Ravichandran, president - insurance, TATA AIG General Insurance, points out, "Maximum number of claims have been received for automobiles (cars and two wheelers) followed by small business units, telecom towers and ATMs."

Victims increase coverage
An emerging trend that insurers observe is that calamities force those who are affected to buy covers and the victims who have covers to enhance the sum assured. "After the J&K floods last year, many who were insured were seen enhancing their covers to avoid underinsurance in the future; however, most who were uninsured continued to remain without an insurance cover," says Adidamu.

Another strange behaviour is observed. "Commercial risks are generally insured against fire risks either because they are financed by banks or financial institution or are owned by corporates," points Easwara Narayanan, chief operating officer, Future Generali India Insurance Co. But insurers are quick to add that even the entrepreneurs and SMEs who insure their commercial places, they fail to buy a cover for their residence or the valuable.

Why low conversion?
But why don't people buy covers after they have shown interest in buying the product and reducing their risks?

There are varied reasons that experts point out. "Unless someone sees their neighbour or a related person being paid they wouldn't see value in insurance," Ghai observes.

"The problem is that we tend to forget about such incidences and move on with each passing day. In process, we de-prioritise insurance and classify it as something we can revisit later," says Dahiya.

Wouldn't victims themselves be interested in the cover? "Those who are victims they are likely to buy a cover. But victims apart unless there are any tax incentives like in the case of health insurance, very few think of buying a cover for their home," Ghai adds.

In fact earthquake prone areas in US too have people who are under-insured.

Asked whether the claims payout ratio has a role to play, Adidamu says, "No, the claims payout ratio does not have any role to play. It is essentially due to the poor awareness levels and extremely low penetration of home insurance in the country."

Premium hike
But would the premium be hiked in pockets which are prone to calamities? Insurers decline a hike in rates as one cannot charge a higher fee in isolation. "Such frequent and heavy losses would ultimately lead to a hardening of the market and premium may go up. But then, this would not happen in isolation. Much would depend on the aggregate loss ratios," says Narayanan of Future Generali.

The re-insurance market has been muted and that rules out chances of premium hike too. "I don't think premium would harden as re-insurance rates have been soft," says Sinha of Unison.