Losses due to recent floods estimated at ₹15,000 cr; insurance only for 8%: SBI

The economic loss due to recent floods in Himachal Pradesh, Uttarakhand, Punjab, Uttar Pradesh, Rajasthan, Jammu and Kashmir, and Delhi is estimated to be around ₹10,000 to ₹15,000 crore, according to the latest report by SBI Research. In Himachal Pradesh alone, the loss is estimated to be around ₹3,000 to ₹4,000 crore.

As many as 361 instances of natural disasters have taken place between 2001 and 2022 in the state. Of this, 41% of disasters have occurred in the form of floods.

However, despite being marred by floods, the issue of protection gap is neglected in India, thinks SBI Research. Out of the total $284 billion global economic losses, natural disasters resulted in $275 billion in 2022, of which $125 billion were covered by insurance (incurred losses).

The overall protection gap has increased to $151 billion in 2022, which is much higher than the 10-year average of $130 billion but still at around 54% of the total losses uninsured. Though still large, this is less than the 61% average protection gap of the previous 10 years. For India, this figure is a staggering 92%.

"In effect, in India, an average Indian is insured of roughly 8% of what may be required to protect a family from financial shock following the death of the breadwinner. This means having savings and insurance of just ₹8 for every ₹100 needed for protection, leaving a protection gap of ₹92," says the think tank.

SBI Research suggests the formation of a ‘Disaster Pool,’ which can be formed in the public-private partnership for providing insurance in cases of natural disaster. This is in addition to the crisis loans and grants, granted by the government. Citing the example of the 2020 floods, the think tank says the economic loss was $7.5 billion or ₹52,500 crore, however, insurance cover was only 11%. "If government would have insured it, then the premium for the sum assurance of ₹60,000 crore would have only in the range of ₹13,000 to ₹15,000 crore."

"We need box solutions for addressing these natural disasters and the general lack of awareness even across businesses in ensuring protection gap for workers. In the MSME sector, only 5% of the units are insured in the country. This sector needs a much higher level of protection. In such a case, the Government may launch a partnership program to cover the MSME employees and provide social security to them in terms of insurance benefits and income protection for their families by way of an Insurance Scheme for MSME Promoter to cover losses in business due to reasons beyond the control of the promoter," says the report.

"Further, whether it is life or general (non-life), in most of the segments the protection gap is about 70 to 80%. Only 20% to 25% is being availed. There is a huge gap. So, insurers need to exploit the situation, which has huge business potential," it adds.