Page 22 - RMAI Bulletin July - September 2021

RMAI BULLETIN JULY TO SEPTEMBER 2021

connected with fast telecommunication, 5G Internet however recognized that the Underwriting is not a
and vast & exploding knowledge in all fields. We are purely technical issue but a tech-know-commercial one
better equipped to face the challenges today provided and Insurers have large experience & expertise to
we use the knowledge available. Let us identify the frame their underwriting policy.
challenges:
Reinsurance
Underwriting Reinsurance is the unique feature of Insurance

In All India Fire Tariff all the weather perils viz. business. No other business has it. By Reinsurance the
Cyclones, Flood etc. were clubbed together and a risk is shared globally. Insurers/Reinsurers retain the
single rate was uniformly charged all over India. The risk based on their capital & risk appetite and share
tariff rates by nature are generally conservative and their premiums and claims through the reinsurance
ignored risk based premium structure. This mind set treaties for smooth business operations. But the
appears to be continuing even though there are no important factor in Reinsurance is to MPL estimate to
tariffs in the Indian market. Consequently only those decide the retention of individual risk and transferring
customers who are exposed to the risk took the cover the balance to Reinsurers all over the world. But in
while the majority did not cover the hazard, leading case of catastrophic perils such as Tropical Cyclone not
to selection against Insurers. The time has come to only one client is affected but a large number of clients
develop sound underwriting policy for covering suffer damages since the diameter of the cyclone can
Tropical Cyclones Hazard so that majority of customers be as high as 500 kilometers plus. Here the
buy the cover. Thus following the first principal of accumulation of MPLs is critical. Technology of GIS
Insurance i.e. few unfortunates are paid from the comes to help to arrive at accumulated MPLs in one
premium collected from the majority. This is one major single cyclone.
reason why the insurance penetration has remained
low in India. Based on the MPL and Accumulation of MPLs
Estimates Insurance companies can design their
Maximum Probable Loss (MPL) Estimate (which the Reinsurance Policies to protect their balance sheets
Insurers use as a principal tool for Underwriting & with no surprises and to safe guard interests of their
Reinsurance) is the answer. The Insurers have to look all stakeholders. GIS software application such as
at their claims paid for Tropical Cyclones in last 5 or 6 TROPCYC can play very important & effective role in
six cyclones. The claim study would reveal the myth delivering to the customers, updating data/analysis on
of 100% or total loss in a Tropical Cyclone. Of course a real time basis at a click of the mouse in today's fast-
in some cases such as mobile towers etc., loss can be moving market.
total but not in the well built structures, in particular
in bread & butter business of Commercial and Loss Prevention and Disaster
Industrial assets. Incidentally internationally recognized
Saffir-Simpson scale does not include Severe Cyclonic Management
Storms (Wind Speeds below 119 kilometers per hour) There is a huge data source in the form of claims and
as causing significant damages. Also Insurers in India Engineers Inspections which can be utilized to
did not have significant claims reported in recent recommend Loss Prevention measures and to prepare
'Nisarga & Nivar' Severe Cyclonic Storms.

The need of the hour is to analyze the claims paid in
the recent six or seven Tropical Cyclones by the
Insurance companies to arrive at realistic MPL
Estimates. MPL Estimate would need to be co-related
with Red, Yellow & Blue Zones by using Latitude/
Longitude of the location of the claim for different
occupancies. The realistic MPL Estimates together with
predicted number of cyclones & their intensities would
equip Insurers to form their underwriting policy. It is

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