West Bengal: Cyclone Amphan generated most claims for weather-related losses in 2020-21

The aftermath of Cyclone Amphan in May 2020 has propelled Bengal to the forefront of insurance claims for losses due to extreme weather events in 2020-21.

Climate scientists caution that this event is not an isolated incident. With climate risks on the rise, Bengal stands to be impacted many more times in the future than it has in the past, says a recently released IPCC WGII report.

If the last couple of years are any indication, the insurance sector will come under increasing strain as it will be confronted with a high number of claims for climate-related disasters like cyclones and floods.

The Amphan cyclone has led to filing of 14,575 insurance claims worth Rs. 1,767 crore for losses that it caused. Of them, 11,512 claims worth Rs. 470.9 crore have been settled. But 1,693 claims worth Rs. 1,235.7 crore remain outstanding.

Insurance watchdog IRDA (Insurance Regulatory and Development Authority of India), which mentions in its 2020-21 annual report that natural catastrophic events like cyclones and floods have had an impact, has so far failed to provide guidance on risk assessment for climate hazards.

Climate Trends director Aarti Khosla said, “In 2020-21, the single largest event that led to the maximum number of insurance claims was cyclone Amphan that caused extensive damage in Eastern India, primarily in Bengal. Yet, India has the lowest rate of insurance penetration across Asia. Insurance sector is evidently ill-prepared for short-term and immediate climate related risk. We’re not even discussing how to deal with multi-decadal changes like sea-level rise, heat mapping and drought, which are no longer a distant risk, but may strike within three-eight decades”

MunichRe, India’s largest reinsurer, agrees that storms, flooding and drought are the key weather risks for the Indian region. In general, insurers have long relied on ‘catastrophic models’, which use historical loss data to price future risks. However, unprecedented climate conditions have and will make modelling future losses more difficult than ever before

Ulka Kelkar, director, climate change programme, World Resources Institute (India), said, “The insurance industry has an absolutely crucial role to play in climate resilient development. First, by becoming more nimble in making payouts it can help people bounce back faster from the shocks of extreme weather events and untimely weather events. Second, insurance premiums can be a very useful signal to prevent the build-up of infrastructure in locations that are exposed to climate hazards. Third, insurance industry needs to look at its own investments and choose low carbon rather than high carbon projects that could become underperforming assets.”

A 2020 review of climate disclosures from the global insurance industry shows that Indian insurance companies were among the worst performers among their global peers. The ability of insurers to articulate their management of climate risk is not only important to their shareholders, but also to the financial stability of the economy.