Insurers need to diversify investments to tackle climate risks:IRDA chief

Alice Vaidyan, CMD, GIC Re said that the reinsurance and insurance sector have witnessed varies catastrophes in the last few years and in case of hurricane scenario, some patterns can be found. She emphasised that there is urgent need by insurers and govt. to put forth finances and support the risk management processes.

(L to R)- G Srinivasan,Director National Insurance Academy,S.C Khuntia,Chairman,IRDAI and,Alice Vaidyan, CMD, GIC Re at a seminar on ``Challenges of Climate Risks on Insurance Business'' in Mumbai

 

Mumbai:

S.C Khuntia, chairman, IRDAI,said Indian insurers need to undertake diversified investments in different companies and sectors rather than restricting themselves to a few companies to create a financial resilient future to face risks out of climate chnage..

 

Besides,insurance companies need to provide solutions like building a Catastrophic (CAT) reserve that can be used in emergency, he said.

 

Speaking about the risks related to calamities arising due to climate change, Khuntia said, "for most insurers, there is investment risk involved and so they have to find ways to do innovative risk transfers. 

 

He was addressing a two-day International Seminar on ``Challenges of Climate Risks on Insurance Business – Risk Mitigation and Adaptation Strategies'',jointly organised by Pune based National Insurance Academy (NIA) and Swiss Re ,on Thursday in Mumbai.

 

"There are many methods like risk pooling and securitisation of climate risk liabilities through instruments like catastrophe bonds. We need to deliberate on a much larger scale because climate change is real," he said. 

 

.He  cited the example of Kerala flood to highlight the huge insurance protection gap in India.He believed that insurers need to play a vital role in not only accepting risks but even in warning and cautioning about the imminent calamities.


Noting that the insurance industry is basically for risk mitigation and risk management, it needs to think about both the liability as well as investment sides as well since most of them are long-term investors. 

Risk pooling is a system under which insurers come together to form a pool, which can provide protect them against catastrophic risks such as floods or earthquakes, while catastrophe bonds (also known as cat bonds) are risk- linked securities that transfer a specified set of risks from a sponsor to investors.

 

Alice Vaidyan, CMD, GIC Re said that the reinsurance and insurance sector have witnessed varies catastrophes in the last few years and in case of hurricane scenario, some patterns can be found. She emphasised that there is urgent need by insurers and govt. to put forth finances and support the risk management processes.

 

Satish Raju, Head Global Partnership, South Asia, Swiss Re said that Insurance needs to be seen as a more holistic risk management concept, rather than treating it as a mere risk transfer mechanism and this is where we fail.

 

He believed that for India to reach global penetration percentage, 40-50 per cent of protection gap can be filled by government and pointed out that as an industry we need to do more, talk in a language that government understands and start talking about insurance as a key financing tool.

 

G Srinivasan, Director, NIA, pointed out that global warming have assumed serious proportion affecting mankind and made the audience ponder over the question that what kind of planet we will be leaving behind for the future generations. He suggested a simple NATCAT product for the market and government subsidiaries premium for the weaker section.

 


Comments