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DEATHQUAKE;
UNINSURED PROPERTY
Leave
It To God
Insurance
firms will cough up only Rs 50 cr for the huge property loss
By
Sumit Mitra
Is
earthquake an insurable risk? Well, why not, since there are policies
to cover all forms of perils. In the case of earthquakes, however, there
is a catch. Insurers usually do not put it in the basket of hazards generally
known as a "fire policy" (earthquake is a risk known by the
generic name of fire in insurance parlance). Instead, they put a separate
price tag on the earthquake cover. Buy it if you like. Policyholders,
in their turn, are not particularly keen to have their homes or businesses
insured against earthquakes. At least not until one hits them.
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"Quake
cover doesn't worry us. It's the huge personal accident risk that
is worrisome."
B.D. Bannerjee, CMD, Oriental Insurance Co. |
Till last
year, the General Insurance Corporation (GIC), the state-owned monopoly
of non-life insurance, went against the current of insurance business
worldwide as it offered the earthquake cover as a part of its "standard
fire and special perils" policy. However, after a series of earthquakes
in the 1990s, particularly the 1993 quake in Maharashtra which left 10,000
dead and 25,000 homes destroyed at Latur, the Tariff Advisory Committee
(TAC) began rethinking. Result: from May 1 last year, GIC subsidiaries
delinked earthquake from the fire policy and offered it as an add-on cover,
with a special premium rate.
The insurers
should now thank the TAC for this move, because, as B.D. Bannerjee, chairman-cum-managing
director of the Oriental Insurance Company, one of the subsidiaries, says,
"The earthquake liability of our industry following the Gujarat catastrophe
will be marginal as very few household policyholders have taken the add-on
cover." TAC member R. Berry says that only "about 5 per cent"
of the households under the fire policy have paid extra for earthquake.
Industry sources say that even though the share is larger for high-rise
apartments, more than 60 per cent of the big buildings in metros and state
capitals are not covered for earthquake since the tariff review in the
past year.
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Before
May 2000
Tariff Review
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| Comprehensive
"Fire" policy offered cover for earthquakes in a package
that included fire, lightning, explosion, storm, cyclone, flood, inundation,
riots, strike, terrorism damage, bush fire and many other perils. |
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After
Review
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| Earthquake
policy is separately sold, costing Rs 4,000 for a Rs 1 crore sum assured
for a residential building in a city like Ahmedabad. Being marketed
on a low key, very few bought the add-on cover. |
A visibly
reassured Bannerjee says that the biggest liability of the Gujarat tragedy
will arise not out of losses of buildings due to the earthquake but "because
of the loss of human lives covered by personal accident policy".
Ballpark estimates put this liability in excess of Rs 3,000 crore, much
over the liability of Rs 1,800 crore that GIC subsidiaries bore in the
aftermath of the 1998 Gujarat cyclone. The damage by the earthquake, on
the other hand, may not cost insurance companies more than Rs 50 crore.
Even before
the tariff revision in 2000, the fire policies that were offered had a
provision for exclusion of several risks, including earthquake, against
a discount of up to 30 per cent on the overall premium. The discounted
policy was generally known as "Fire B", against the composite
policy which was called "Fire A". In India, where the general
tendency is to leave acts of God uninsured (the total general insurance
premium income being 0.4 per cent of the GDP), most builders chose the
Fire B policy while individual households seldom had any policy.
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| A
damaged apartment block in Ahmedabad |
The new "All
India Fire Tariff" not only made earthquake an add-on cover but allowed
exclusion, against discount, of many other perils, including floods and
riots. The discount offered was up to 20 paise on an annual premium of
around Rs 1.50 for every Rs 1,000 of sum assured. As expected, the owners
of most large buildings thought it wiser to do away with both, thus fully
exposing their property to the financial risk associated with, say, a
supercyclone like the one that ravaged Orissa in 1999.
The recent
earthquake policy is not particularly high priced, yet very few promoters
of the high-rise buildings in Ahmedabad or Surat have even looked at it.
Only if they had, most of the bills for rebuilding the houses would have
been passed on to the insurance companies for a negligible price.
Going by
the earthquake map of India that the industry follows (see graphic), Ahmedabad,
Rajkot and Surat fall under the low-risk Category Three, where the premium
on earthquake policy is Rs 400 a year for a cover of Rs 10 lakh. Even
for the quake-rocked Kutch district, which is in Category One, the cost
of insurance is just Rs 1,000 annually for the same amount. In Delhi,
a state in the second category of risk, the add-on cover costs only Rs
500 a year. This is despite Delhi being the most earthquake-prone metro
in the country, having recorded five quakes estimated to be over 5.5 on
the Richter scale in the past 300 years-a small span of time for geological
events.
With
private insurers waiting at the industry's gate, the cost of cover for
earthquakes is likely to go up. This is because the earthquake map is
based more on past seismic records than actual geological data - Latur,
for that matter, is shown in the safest zone-and thus an unacceptable
base for fixing the tariff. H. Ansari, member of the Insurance Regulatory
and Development Authority, says that a new, more scientific map is in
the making because "the risk of earthquakes needs precise measurement".
For the
present, however, there will be hardly any insurance compensation for
the shattered buildings in Gujarat, nor for the loss of its valuable contents.
In California, the 1994 earthquake in Los Angeles increased public awareness,
resulting in the share of insured homeowners growing from 5 per cent to
17 per cent. In India, the state-owned insurance firms have sold the cover
cheap yet kept it on such low key that few have felt its need.
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