Page 116 - India Insurance Report 2023- BIMTECH

104 India Insurance Report - Series II

unique and appropriate for India. ILS are essentially financial instruments which are sold to investors whose
value is affected by an insured loss event. As such, ILS encompass catastrophe bonds and other forms of risk-
linked securitization. As securities, ILS can be and are traded among investors and on the secondary market.
They allow insurers to offload risk and raise capital. The necessary regulatory changes will have to be affected
around (re)insurance regulations and establishing workable linkages with taxation and the capital markets.

On the demand side, for high-severity disasters, the parametric solution could be appropriate for the
protection of NDRF. Since home insurance is not so popular, there could be, for high-severity disasters,
a comprehensive indemnity-based (mandatory) solution for those who can afford it and a standard
parametric product for the below-the-poverty-line segment. Commercial enterprises must optionally go
for covering high-severity risks. The reconstruction of Government-owned assets and public utilities,
such as school buildings, hospitals, roads, bridges, etc., could be insured through SDRF funds.

In agriculture, the farmers in India are provided support on both the input and output sides. We must
shift the nature of support to farmers from input subsidies to investment subsidies. The approach to
diversification has to be demand-led, with a holistic value chain framework, from farm-to-fork and not
just focused on production. The PM Fasal Bima Yojana (PMFBY) has to be seen in this context. Crop
insurance requires a facilitative regulatory role to help increase supply-side sustainability and promote
mutuality. Moving from profit-taking to risk-sharing will be seen as a fair deal. All small and marginal
farmers must be part of PMFBY. A parametrized crop insurance against weather conditions covering all
farmers – loanee and non-loanee – with actuarial premia to be paid by the government and administered
by the IRDAI, with robust support from the professional (re)insurers will, from a sustainability and risk-
management perspective, will be a better policy intervention than agricultural input and output subsidies.

A new international network of insurance regulators and supervisors has been launched to promote
cooperation on critical sustainable insurance challenges, such as climate change. The insurance sector is
pivotal to an effective response to sustainable development. The Indian insurance industry, on its part,
must double down on its supply-side tools and help the government strengthen its demand-side instruments
since identifying vulnerable areas, recommending adaptation measures, and encouraging the adoption
of resilient practices precede insurance transfer mechanisms.

It is vital that a strong body dedicated to risk understanding and mitigation, as well as improving
resilience, is created in India. National Insurance Academy (NIA) at Pune fits the bill and should be
tasked with such a responsibility, as it has the necessary infrastructure. Its current Vision Statement -
“NIA to be a global institution of excellence in learning and research in Insurance, Pension and allied
areas” should be tweaked to serve the objectives suggested. This body will work alongside all the related
local and global bodies. The task of the recommended Indian Institute will also be to evolve risk transfer
mechanisms, i.e., ex-ante risk financing mechanisms like insurance, that form a crucial part of a
comprehensive disaster strategy. However, This new task will involve heavy upskilling, significant
funding, and Government support. The recommended Indian institute should also (illustrative) Address
social issues, e.g., pollution, safety at work, and construction defects; Address ever-growing risk profiles
such as through climate changes and cybercrimes etc.; Enforce implementation of construction codes
and improve data collection (both in terms of quality and format); Develop insurance schemes that
transfer risks from Government to the insurance industry; Facilitate the development of local talent
pools and consultancy services such as Risk Management Engineers, among other things.