Introduction:

As India is vulnerable to natural disasters such as earthquakes, floods, tsunamis and cyclones, DISASTER RISK INSURANCE programme can play a key role.

The real cost of floods across Kerala in August may never be really known.

• Hundreds dead, thousands displaced, millions lost.
• The scale of damage from any natural disaster can never really be measured because of the long-term ecological and psychological effects.
• The spread of diseases, such as cholera, malaria, and leptospirosis, may impact flood-hit communities beyond the crisis for years to come.
• Tourism has been hit.

We react every time there is a disaster. We band together and raise funds, help victims and volunteer time to clean up and rebuild.

However, the task before us should be to move from a reactive stance to proactively prepare for natural disasters (through Disaster Risk Insurance).

Concerns:

• Impact of disaster has increased due to large urban migration.
• India alone is projected to have seven megacities—defined by a population of more than 10 million—by 2030, according to World Economic Forum.
• This confluence of climate change, natural disasters, and human density could lead to more Kerala-like images.
• It becomes very difficult to rebuild societies in the event of any natural catastrophe and to minimize any long-term impact by reducing the gap between economic losses and available funding, known as the protection gap.

Do you know?

• The cost of recovery and reconstruction in Kerala has been put at ?31,000 crore, according to a UN report.
• However, the annual allocation by both state and central authorities to Kerala’s disaster relief fund is a mere ?214 crore.
• Taking into consideration of additional funds from the central government’s National Disaster Response Fund; commercial and private insurance claims – the current estimate is believed to be no more than ?2,500 crore.
• That means, in this scenario, the protection gap is upwards of ?25,000 crore.

Solution:

• The GST Council has now been asked to examine the feasibility of a disaster levy to finance disaster-related reconstruction. But it is not sure whether a state levy will sufficiently incentivize states to improve their disaster risk management.
• Therefore the way ahead is to transfer disaster risks over to the insurers or reinsurers.

Disaster Risk Insurance Benefits:

• Immediate payouts can be made through parametric solutions based on the amount of rainfall or the intensity of a drought, for example.
• Governments would be transparency over funding.
• Immediate payouts to citizens.

There are numerous examples for Kerala—and India—to follow. For example,

• America’s National Flood Insurance Program
• the Caribbean’s 16-country hurricane, earthquake and rainfall risk insurance fund
• Mexico’s FONDEN programme
• China’s provincial Guangdong and Heilongjiang governments have purchased insurance against natural disasters as a means of fiscal budget protection—the idea being that a disaster will hit multiple areas of a budget beyond the core.

All these are comprehensive disaster-risk financing strategy comprising reserve funding, reinsurance and catastrophe bonds.

Several of these programmes have responded with timely payouts following recent natural disasters.

Conclusion:

Disaster Insurance Programmes are especially relevant in India’s developing environment of competitive federalism, where state governments are expected to rely less on federal assistance, especially when it comes to funding post-disaster reconstruction.

Insurance purchased on the government account will serve to plug the gap in reconstruction financing. (immediate relief, rehabilitation, restoration and rebuilding of infrastructure)

States can pay for insurance premiums from the disaster relief fund allocations. This will not only promote greater financial autonomy at the state level, but also has the advantage of requiring no additional budgeting by New Delhi.