Page 19 - Insurance Times August 2021

Underwriting through the reinsurance treaties for smooth business
operations. But the important factor in Reinsurance is to
In All India Fire Tariff all the weather perils viz. Cyclones,
Flood etc. were clubbed together and a single rate was MPL estimate to decide the retention of individual risk and
uniformly charged all over India. The tariff rates by nature transferring the balance to Reinsurers all over the world.
are generally conservative and ignored risk based premium But in case of catastrophic perils such as Tropical Cyclone
not only one client is affected but a large number of clients
structure. This mind set appears to be continuing even
though there are no tariffs in the Indian market. suffer damages since the diameter of the cyclone can be as
Consequently only those customers who are exposed to the high as 500 kilometers plus. Here the accumulation of MPLs
risk took the cover while the majority did not cover the is critical. Technology of GIS comes to help to arrive at
accumulated MPLs in one single cyclone.
hazard, leading to selection against Insurers. The time has
come to develop sound underwriting policy for covering
Based on the MPL and Accumulation of MPLs Estimates
Tropical Cyclones Hazard so that majority of customers buy
the cover. Thus following the first principal of Insurance i.e. Insurance companies can design their Reinsurance Policies
few unfortunates are paid from the premium collected from to protect their balance sheets with no surprises and to safe
the majority. This is one major reason why the insurance guard interests of their all stakeholders. GIS software
application such as TROPCYC can play very important &
penetration has remained low in India.
effective role in delivering to the customers, updating data/
analysis on a real time basis at a click of the mouse in today's
Maximum Probable Loss (MPL) Estimate (which the Insurers
use as a principal tool for Underwriting & Reinsurance) is fast-moving market.
the answer. The Insurers have to look at their claims paid
for Tropical Cyclones in last 5 or 6 six cyclones. The claim Loss Prevention and Disaster Management
study would reveal the myth of 100% or total loss in a There is a huge data source in the form of claims and
Tropical Cyclone. Of course in some cases such as mobile Engineers Inspections which can be utilized to recommend
towers etc., loss can be total but not in the well built Loss Prevention measures and to prepare disaster
structures, in particular in bread & butter business of management plans. This information may be shared with
Commercial and Industrial assets. Incidentally internationally customers of the Insurance Companies first and also with
recognized Saffir-Simpson scale does not include Severe the professionals viz. Architects/Structural Engineers/
Cyclonic Storms (Wind Speeds below 119 kilometers per Industry bodies/Disaster Management Institutes/NGOs etc
hour) as causing significant damages. Also Insurers in India and also general public. It would be a great service to the
did not have significant claims reported in recent 'Nisarga nation. Regulator can play a vital role by publishing
& Nivar' Severe Cyclonic Storms. informative reports and circulating them to all concerned
and thereafter interacting with them proactively. This
The need of the hour is to analyze the claims paid in the would certainly increase reputation of the Insurance
recent six or seven Tropical Cyclones by the Insurance Industry.
companies to arrive at realistic MPL Estimates. MPL
Estimate would need to be co-related with Red, Yellow & Geographical Information System (GIS)
Blue Zones by using Latitude/Longitude of the location of Reference was made to GIS as a tool which is must for
the claim for different occupancies. The realistic MPL Insurance Industry for Risk Assessment, Marketing and
Estimates together with predicted number of cyclones & much more.
their intensities would equip Insurers to form their
underwriting policy. It is however recognized that the Under remote sensing technologies with the help of
Underwriting is not a purely technical issue but a tech-know- satellites, it has become possible for us to monitor our planet
commercial one and Insurers have large experience & and gain critical information pertaining to the topography
expertise to frame their underwriting policy. and climate data. Over the years, this data has become
prevalent in determining as well as predicting natural
Reinsurance calamities for property protection and development.

Reinsurance is the unique feature of Insurance business. No
other business has it. By Reinsurance the risk is shared GIS is now being extensively used to predict natural
globally. Insurers/Reinsurers retain the risk based on their disasters. Initially used to accumulate land data, GIS
capital & risk appetite and share their premiums and claims technology is now being increasingly integrated into risk

The Insurance Times, August 2021 19