Home Insurance Penetration
To reduce the burden of losses from disasters, there is an urgent need to increase home insurance penetration in the country
Protect your most precious asset with a comprehensive coverage
Natural Disasters and Their Financial Implications
India is among the most disaster-prone countries in the world. Over 58% of India’s landmass is prone to earthquakes, over 12% of its land is prone to floods and river erosion, 5,700 kms of its 7,517 kms long coastline is prone to cyclones and tsunamis, and its hilly areas are at risk from landslides and avalanches.
It is a well-recognised fact that natural disasters are a major hurdle for economic development of the country. Natural disasters on an average cause a loss equivalent to 2% of the country’s GDP annually, apart from eroding the gains of development.
Unplanned urbanisation, development within high-risk zones, changing demographics, environmental degradation, and climate change compound the disaster risks in India. Financing of disasters has historically relied on reactive tactics i.e., diversion of funds from budgets. Such post facto financing of disaster losses is inefficient and insufficient too.
Home Insurance: The Need of the Hour
Promoting a financial tool like risk insurance is the need of the hour. Indians have suffered heavy loss from damage to their homes and household belongings. The havoc caused by floods in Mumbai over a decade ago and the floods in Chennai in 2015 were disasters that should have made people to make a dash to insurance companies for insuring their homes. But it has not happened. There is a huge gap between the economic losses and the insured losses arising from disasters. According to a FICCI report, only 11% of the total losses caused by floods in Mumbai, Surat and Uttarakhand were insured.
Awareness about home insurance among the masses is very low. The few who understand do not consider buying insurance to protect their homes. The tendency is to leave it to the governments to bear the cost of compensating the loss. But, the capacity of the governments is strained and it will get further strained, as cities grow bigger.
Home Insurance Penetration Scenario in India
According to Swiss Re’s 2015 Property Protection Gap study, India is among the most under insured countries relative to GDP, with penetration of property insurance as low as 0.07%, against 0.36% in Brazil and 0.23% in Russia.
Home insurance accounts for only about 2% of the total premium collected by general insurance companies in India. The total premium of general insurers in the first nine months of 2016-17 was over ₹ 1,00,000 crore. The insured loss from the 2015 flash floods in Chennai alone was $755 million (over ₹ 5,000 crore), which included loss of life, cars, and commercial property.
Most of those who have bought home insurance in India have taken home loans. Home insurance in their cases was a pre-condition for availing of home loans.
Why Home Insurance Is Important?
With growing vulnerabilities, importance of home insurance too is rising. How can homeowners be made to buy home insurance? One of the suggestions is to make home insurance mandatory in regions that are prone to flash floods, earthquakes, cyclones, landslides, etc. The others include purchase of home insurance compulsory for those availing home insurance and fiscal incentive in terms of tax benefits on home insurance premium.
Low home insurance penetration makes the business a loss-making one for insurers. The risk for insurers will be at acceptable level if homeowners in large numbers buy home insurance. Better penetration of home insurance will distribute disaster risk among the broader society.
The benefits offered by home insurance include:
- Coverage for damage to the structure of your home
- Coverage for household contents including electronic goods
- Rent for up to six months if you have to stay in an alternative accommodation till your home is restored back to liveable condition
The cities are growing. Today we have two cities with 1 crore plus populations. With new homes being constructed and as migration to larger cities increases, in little over a decade India will have more cities with 1 crore plus populations. This will also increase vulnerabilities due to disasters. Home insurance can reduce the burden of losses from disasters. Hence, there is an urgent need to increase home insurance penetration.
Vulnerability Profile – National Disaster Management Authority – Government of India (http://www.ndma.gov.in/en/vulnerability-profile.html)
Swiss Re’s study published in an article on Money Control (http://www.moneycontrol.com/investor-education/insurance/classroom/budget-should-closeprotection-gapmore-tax-incentives-5595641.html)
A study on general insurer’s premium published in economic times – (http://economictimes.indiatimes.com/news/economy/finance/general-insurance-industry-grows-to-rs-1-03-lakh-crore/articleshow/57186386.cms)
Sigma study by Swiss Re published in a business standard article – (http://www.business-standard.com/article/current-affairs/flash-floods-in-chennai-last-november-caused-economic-losses-of-2-2-billion-116033000611_1.html)
The contents of this document are meant merely for information purposes. The information contained herein is subject to updation, completion, revision, verification and amendment and the same may change materially. The information provided herein is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would (by reason of that person‘s nationality, residence or otherwise) be contrary to law or regulation or would subject lClCl Bank or its affiliates to any licensing or registration requirements. This document is not an offer, invitation or solicitation of any kind to buy or sell any security and is not intended to create any rights or obligations. Nothing in this document is intended to constitute legal, tax, securities or investment advice, or opinion regarding the appropriateness of any investment, or a solicitation for any product or service. Please obtain professional legal, tax and other investment advice before making any investment. Any investment decisions that may be made by you shall be at your sole discretion, independent analysis and at your own evaluation of the risks involved. The use of any information set out in this document is entirely at the recipient's own risk. The information set out in this document has been prepared by ICICI Bank based upon projections which have been determined in good faith by lClCl Bank and from sources deemed reliable. There can be no assurance that such projections will prove to be accurate. lClCl Bank does not accept any responsibility for any errors whether caused by negligence or otherwise or for any loss or damage incurred by anyone in reliance on anything set out in this document. The information set out in this document has been prepared by ICICI Bank based upon projections which have been determined in good faith and sources considered reliable by lClCl Bank. In preparing this document we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us or which was otherwise reviewed by us. Past performance cannot be a guide to future performance. 'lClCl ' and the 'I-man' logo are the trademarks and property of lCICl Bank. Misuse of any intellectual property, or any other content displayed herein is strictly prohibited.
Scroll to top