Indian Insurers need to buck up in climate sector related losses

According to a recent analysis of the global climate insurance sector, Indian insurance companies rank among the lowest performers worldwide in terms of covering climate-linked losses, with the lowest rate of insurance penetration across Asia. This was highlighted by their failure to pay nearly three-fourths of the claimed amount for Cyclone Amphan, despite releasing a record amount of insurance claims for any natural disaster.

The report, based on an Ernst & Young review of climate disclosures, assessed Indian insurance companies’ disclosures against the recommendations made by the Task Force on Climate-Related Financial Disclosures (TCFD), indicating poor performance with scores below 10 percent. The TCFD, established in 2017 by the G20 Financial Stability Board, sets recommendations for companies to analyze and disclose climate-related impacts for their businesses.

Indian insurers’ inadequate incorporation of climate risk assessment in their decision-making processes has been pointed out, suggesting the need for sensible regulations by the Insurance Regulatory and Development Authority of India (IRDAI) to mandate climate risk modeling by insurers and repricing of premiums.

Despite significant claims made for damages caused by Cyclone Amphan, a large portion of these claims remained unsettled, reflecting the challenges in the insurance sector. Similar trends were observed for other weather events in the country, such as floods and cyclones, with insurance companies bearing less than 10 percent of the actual losses in many cases.

India’s vulnerability to climate-induced flooding, heat stress, and droughts has been emphasized in various reports, with predictions of substantial economic losses if appropriate measures are not taken. The latest report from the Intergovernmental Panel on Climate Change (IPCC) stresses the importance of enhancing climate risk insurance, considering the imminent risks that exceed all thresholds.

Overall, the need for a stronger focus on climate risk insurance is paramount, particularly in a country like India, where a significant portion of the population resides in districts vulnerable to climate risks.