The Hindu : Insurance: Unified law for disaster management favoured

Online edition of India's National Newspaper
Thursday, Jun 26, 2003

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Insurance: Unified law for disaster management favoured

By Our Special Correspondent

NEW DELHI JUNE 25. The World Bank has quantified that natural disasters have cost India as much as $13.8 billion during 1996-2001 and eroded 2 per cent of the gross domestic product (GDP).

Participating in an insurance seminar organised by the Federation of Indian Chambers of Commerce and Industry here today, Eugene Gurenko, Senior Insurance Officer of the World Bank Insurance Group, said out of 31 States in India, 22 were regarded as being particularly disaster prone. About 55 per cent of the country's land was vulnerable to earthquakes, 8 per cent to cyclones and 5 per cent to floods. The disasters erode 2 per cent of the GDP and 12 per cent of Government revenues, he said.

Direct losses from natural disasters increased to $13.8 billion during 1996-2001, up from $13.4 billion in 1981-95 and $2.9 billion during 1965-80, according to the World Bank's estimates. The seminar also brought out the point that current division of responsibilities between the Centre and the States made it necessary to create a body of legislation dealing with response to natural disasters and other emergencies. The proposed legislation, apart from delineating responsibilities and powers of each entity should also specify the manner in which these powers and action would be initiated, C. S. Rao, the newly appointed Chairman of the Insurance Regulatory and Development Authority (IRDA) said at the seminar.

Mr. Rao also felt that the proposed legislation should also incorporate the current legislation dealing with chemical emergencies as had been created by the Union Ministry of Environment so that all emergencies would be dealt with under one law.

The former Chairman of IRDA, N. Rangachary, in his presentation, called for the establishment of an insurance pool to combat natural disasters and the creation of a tax-free `catastrophe reserve' for easy availability of finances to meet these contingencies. He also highlighted the need for creating a mechanism through which municipalities or local self governing bodies could collect premium from the people as part of the taxes levied.

Mr. Rangachary also felt that policies with adequate covers existed in India but the insurance companies were unable to market them on a large scale. The problems now being faced by the industry were related to pricing, product definition and the total number of risks to be covered, he said.

The World Bank representative also highlighted the point that the Constitution did not directly specify which level of Government was responsible for managing disasters and said the Centre was financing catastrophe relief efforts through `margin money' allocated to the States from the successive Finance Commissions.

Referring to the private-public partnerships in developed nations for funding losses on account of natural disaster, Mr. Gurenko said the Indian insurance sector needed to be liberalised further by removing restrictions such as cross-subsidisation of household and small businesses. Fire premium, in particular, for small business and households should be liberalised from the current tariff regime, he said. Moreover, the claims handling procedures should be streamlined in the event of natural disasters.

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