Insurers are preparing to manage claims arising from an extremely powerful cyclone which battered the eastern Indian state of Odisha on 3 May causing extensive damage to property, vehicles, crops and the loss of at least 56 lives. According to risk modelling and data analytics firm AIR Worldwide, Fani is the equivalent of a strong Category 3 storm on the Saffir-Simpson Scale and is the strongest cyclone to make landfall in Odisha since Phailin in October 2013. Several news report have also labelled cyclone Fani as the worst storm in four decades affecting eastern India and neighbouring Bangladesh.
A large number of claims are expected for the damage of property, vehicles and hospitalisation while few claims will be for damage to crops, reported local publication The Hindu Business Line. There is also likely to be fewer life insurance claims as the state’s improved disaster-management efforts limited the number of casualties.
However, several insurers note that underinsurance is a major challenge. According to research from Lloyd's and the Centre for Economics and Business Research, India was found to have an insurance penetration rate of less than 1% with the absolute cost of the insurance gap standing at $27bn.
The Insurance Regulatory and Development Authority of India is expected to issue advisories for claims processing in the cyclone-affected areas. There are no official figures regarding total insured losses arising from cyclone Fani yet.
Drawing similarities from cyclone Phailin
According to AIR, Phailin and Fani are the strongest storms to hit India since October 1999. Most recently, cyclone Hudhud made landfall near the city of Visakhapatnam in Andhra Pradesh in October 2014 causing widespread damage to property. AIR noted that cyclone Fani is a very strong storm for early May as other historic cyclones on record have all made landfall in October.
Six years ago, cyclone Phailin made landfall as a Category 4 storm on India’s east coast, killing more than 25 people and generating economic losses of an estimated $700m to $4.5bn according to local governments and Swiss Re respectively. Despite its strength, Phailin resulted in very low insured losses due to relatively few exposures in the landfall region and low insurance penetration rates.
To quantify potential losses from Phailin, AIR had conducted a study for GIC Re, the sole reinsurer in the Indian insurance market. The study revealed that insured losses were only a fraction of total economic losses due a relatively low participation for crop insurance and high proportion of uninsured residential losses in the region. The hardest hit regions also had a low insurance penetration rate.
According to AIR, residential structures in India are generally less resistant to wind and water damage compared to commercial/industrial buildings. However, India’s diverse commercial/industrial building stock continues to change as older structures are replaced with others that are engineered for wind and water resistance.