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Individual homeowners and small businessmen living in regions prone to natural calamities can look for better cover soon.
In the wake of recent natural calamities resulting in huge loss of dwellings and commercial establishments, a working group of the Insurance Regulatory and Development Authority of India (IRDAI) has suggested a simple, affordable insurance cover for homeowners.
Similarly, different products for micro commercial establishments having a risk value of ₹5 crore and above ₹50 crore have been proposed. The inadequate sum insured for dwellings can be attributed to the fact that it is the customers who decide on it, with insurers having no say over the matter.
‘Reasonable approximation’
Many a time, the customers insure homes for their purchase price.
However, “there has to be a system of default sum insured for all the dwellings such that the default sum insured is a reasonable approximation of the correct value of construction of the building,” the working group said.
It also recommended insurance of home in multi-storied apartments for total saleable price of the apartment based on ready-reckoner rates published by each State government.
On the tenure, it has been suggested that there should be a five-year period of validity for dwelling structure policies.
Huge gap
According to the IRDAI, recent floods (Uttarakhand, Chennai and J&K) and cyclones (Phallin, Hudhud and Fani) have highlighted how economic losses far exceed insured losses.
For instance, the economic losses of the Uttarakhand floods, Cyclone Phallin and Hudhud have been pegged at ₹6,600 crore, ₹3,800 crore and ₹65,000, respectively, according to data available with the National Disaster Management Authority.
However, according to the IRDAI working group, the insured losses for the same were ₹3,000 crore, ₹600 crore and ₹4,000 crore, respectively. It is this kind of gap that calls for a re-look at the norms.
In addition, there have been no changes on the regulatory front in this segment. The product structure has remained almost the same since the All India Fire Tariff Revision, 1988, and the insurance needs are met by the Standard Fire and Special Perils Policy.
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