Open Access Research Article
THE IMMINENCE OF CATASTROPHE INSURANCE IN INDIA : THE JOSHIMATH DEBACLE AND ASSOCIATED CONCERNS BY: MEKHLA CHAKRABORTY & SHILPI GHOSH
Published Paper
Article Details
THE IMMINENCE OF CATASTROPHE
INSURANCE IN INDIA : THE JOSHIMATH DEBACLE AND ASSOCIATED CONCERNS
AUTHORED
BY: MEKHLA CHAKRABORTY
B.
A. L.L.B. (Hons.)
Semester 8,
Fourth Year
Amity
University, Kolkata
CO-AUTHOR: SHILPI
GHOSH
B.A. L.L.B.
(Hons.)
Semester 8,
Fourth Year
Amity
University, Kolkata
Abstract:
The subsidence of land at
Uttarakhand’s Joshimath has manifested the alarming effects of rapid
environmental degradation. A historical analysis of the government schemes
facilitating the repatriation of the victims and refurbishment of the
structures reveal to us the inadequacy of government sponsored relief programs
that suffer from various inherent infrastructural and legislative flaws.
Insurance thus, emerges as an undeniable remedial measure for restitutio ad
integrum. The lack of catastrophic insurance cover in a disaster prone India is
of detriment to the people and the economy, the lack being attributable to the
nature of the catastrophic risk involved. Further existing statutory frameworks
comprising IRDAI guidelines, the Public Liability Insurance Act, 1991, the
Disaster Management Act, 2002 are incompetent to deal with risks of a
catastrophic nature with umpteen instances pointing at the same. Therefore, the
authors have drawn lessons from the disaster hit Joshimath and on that note,
deliberated upon the need for catastrophe insurance in India. A parallel has
been drawn with the catastrophe insurance covers available internationally and
a blueprint of the catastrophe insurance model has also been posed.
Keywords: Catastrophe
Insurance, Insurance, Catastrophe, Risk, Joshimath
INTRODUCTION
The Himalayan belt has become
susceptible to natural calamities over the last few years owing to its over
exploitation triggered by frequent earthquakes, floods and landslides. The
Kedarnath floods of 2013 which took more than 5000 lives or the Uttarakhand
floods of 2021, where a portion of the Nanda Devi glacier caused an avalanche
failed to warn the government against preservation of the environment against
such economic exploitation. In fact, the harrowing turn of events at
Joshimath in Uttarakhand has made insurance all the more relevant in India.
However, the existing insurance businesses in India comprising life insurance,
health insurance, home insurance, marine insurance, fire insurance, etc. have
proved to be futile to cover the risks that nature has thrown at us. India as a
country has witnessed several catastrophes that has not only destroyed the
lives of people and the geology of the place, its negative impacts on the
economy of the nation is also notable. Hence, it is important for the policy
makers to bring about necessary laws pertaining to catastrophic insurance in
the country.
Insurance
is a contract of indemnity. In a contract of insurance, one party, the insurer,
in consideration of a price called premium which is payable to him, protects
the other party, the insured from any financial loss or damage. Insurance in other words, protects the
insured against unforeseen events which may put him to any disadvantage. Section
124 of the Indian Contract Act , 1872 defines a contract of indemnity. It
states that, one party (promisor) promises to indemnify the other party
(promisee) from any loss suffered.
The need
for insurance is growing gradually with the economic growth of the country. In
fact, insurance penetration is directly proportional to per capita GDP of the
country. When there is a rise in income structure, the insurance penetration
increases as well.
In India,
the Insurance Act of 1938 is the main statute that regulates the insurance
industry in the country. The objective of this act is to safeguard the
interests of the policyholders against the mismanagement of the insurance
businesses. But it still fails to recognize catastrophic insurance as an independent
insurance policy. This leads to persons who are affected by natural disasters
to rely solely on government compensation schemes.
Globally,
various developed nations have incorporated catastrophic insurances into their
insurance policies. India, as a country which is vulnerable to such calamities
must adopt this idea and frame a catastrophic insurance policy covering major calamities
in India.
THE JOSHIMATH LESSON
The quaint
little town of Joshimath situated in the Chamoli district of Uttarakhand
subsided under the pressure of unrestrained exploitation that had been meted
out to it for the past several decades. As the future of 350-400 families faces
a looming uncertainty, the role of the government in trying to balance progress
and preservation is being questioned[1]. The Mishra Committee Report of 1976 had cautioned
people of the impending calamity but the warning fell on deaf ears. The
National Thermal Power Corporation’s Tapovan Vishnugad Hydro Power Project is
being criticized as the immediate cause of the disaster but environmentalists
have traced the roots of it to the haphazard construction activities, lackadaisical attitude of the public
authorities towards ecological conservation and failure to carry out EIA (Environmental
Impact Assessment) programs. Government compensation comprising repatriation
and relief was quick to be announced but it is not adequate to .......restitutio ad integrum....i.e.,
restore to the original condition, the lives of the affected and the lacunae in
the same is undeniable and has been discussed by the authors subsequently in
the paper.
Firstly, the process of granting
compensation to the disaster affected is convoluted and replete with
administrative complexities and delays[2]. Document verification of
individuals with report from technical institutes to assess the extent of
damage to the structures on the basis of which the quantum of compensation is
to be decided by the government is a factor responsible for the same. The
compensation rates for commercial and residential buildings are different, the
rates being fixed by the Central Public Works Department (CPWD)[3]. In the aftermath of a
disaster, paperwork should be the least of the victim’s worries and the
successive compensation schemes formulated by the government heavily relying on
it are apathetic, to say the least. Rehabilitating means using up more land of
the already over exploited land of Joshimath and its surrounding areas which
could perhaps have been utilized for hotels, shops, etc. commercial activities
earning revenue for the government. The
interim measures of arranging for shelter homes, relief camps, food and other
safety requirements are also an added expenditure for the government. Even with
the involvement of civil society organizations or the local people, economic
contingencies can mostly be handled either with self-financing strategies or
with government financed relief packages and needless, to say in the aftermath
of a disaster the hope of the former is grim. So, loss of revenue coupled with
incurring of more costs by the government in granting compensation to the
families is of significant burden on the state treasury with Rs. 45 crore
having already been released from the state contingency fund[4].
Secondly, the town of Joshimath being
situated on the mountains of Uttarakhand and being a gateway to major
pilgrimage sites, residents of it are highly dependant on hotel/ home stay
business or commercial activities mainly conducted from their houses, treating
their houses as an asset for sustenance of their livelihood. A sizeable amount
of Joshimath’s population had borrowed money from banks to construct their
houses in the hilly terrain, the average cost of which is higher than that of
on the plains[5]. With the limited amount of
compensation that the government is granting should the money be utilized for
reconstructing the houses or for repayment of the loans is an issue that
requires legislative deliberation.
Thirdly, the plight of the pet
animals and livestock like cattle have been sidetracked from the Joshimath
relief narrative. The authorities have announced a Rs. 15000 compensation for
livestock, Rs. 80 for fodder large cattle and Rs. 45 for fodder small animals[6]. Still, the animals languish in
crack laden abandoned homes of their owners or have been crammed into small
hotels or shelters with families. Either way their condition is dismal. Due to
the undulating hilly terrain, agriculture is not predominant in the district of
Chamoli but the organic farming produce, products derived from aromatic and
medicinal plants is of significance here because agro based industries employ
about 750 people in the district[7]. However, given the predominance of
tourism and commercial establishments, no separate compensation scheme has been
released for agricultural lands in the village of Joshimath. Under such
circumstances, the need for livestock and agricultural insurance is felt.
CATASTROPHE INSURANCE: DEFINITION AND
LEGAL POSITION
Risk is an
indispensable part of human life : some risks more dreadful than others.
Insurance, thus, provides protection against such risks. In India, the Union government
can legislate on matters relating to insurance under the 47th entry
of the Union list as per the Seventh Schedule of the Constitution of India. Although
Entries 23 and 34 of the Concurrent list empower the State governments to
legislate on matters relating to social insurance, the Union still holds a
superior position over the same. Although, no particular provision under the
Constitution deals with insurance; the essence lies in the Preamble to the
Constitution, which aims at economic and social justice.
Catastrophes
are unforeseen and sudden phenomenon causing severe damage or destruction. Natural
catastrophes may include fire, cyclone, floods, earthquakes, cyclones whereas
man-made disasters include explosions, gas leaks, oil leaks etc. Catastrophic
risks are less probability but high risk event[8]. This can
pose as a serious threat not only to individuals or the community but the
economy of the country at large. The disaster affects the poor harder than the
rich in terms of assets. Catastrophes affect the country as a whole, but it is
the rural population who suffer the worst. Thus, it is necessary to insure
against the same. In Lucena vs Craufurd, the stance of the court was
clear, that insurance is meant to protect men against uncertain events which
may otherwise be of some disadvantage to them[9]. Thus, catastrophic
insurances indemnify the affected person or businesses against natural or human
made disasters.
India is a
disaster prone country, with 58.6% chances of earthquake, 12% of floods and 76%
of tsunami and cyclone in the coastal regions and its surroundings[10]. In a
report by United Nations Office for Disaster Risk Reduction (UNDRR), India is in
the third position among the worst hit catastrophic nations in 2020[11].
The
Insurance Act of 1938 defines ‘general insurance business’ under Section 2(6B)
of the Act as fire, marine and miscellaneous insurances. But none of these
insurances distinctly cover ‘catastrophe insurance[12]’.
In India,
catastrophic risks are more of a political- economic issue rather than a socio -
economic matter[13]. Till
date, there is no specific catastrophic insurance in India. Internationally,
many countries have adopted the policy where the citizens are mandated to
purchase catastrophic peril insurances. And India, as well, must adopt this
policy.
Insurance
Regulatory and Development Authority of India (IRDAI) established in 1999 is a
statutory body regulating the insurance sector in India. IRDAI may request
insurance companies to offer a simple ‘Indian Natural Catastrophe Insurance
Policy (INCIP)’ which covers all injuries to life and property[14]. It may also
encourage all citizens above the BPL line to purchase such policies. This
policy is still in preliminary stages in the General Insurance Council. The
objective of this policy is to cover loss of property and its contents and
death or injury. This policy would provide certain amount of relief to the
families which are affected by such calamities. This policy would also spread
awareness amongst the general public against such calamities; considering a
large number of the population is still under the misconception that ‘nothing
bad can ever happen to us’.
Catastrophes
as aforementioned, not only include natural calamities but man-made disasters
as well. Subsequent to the Bhopal Gas Tragedy of 1984, the Public Liability
Insurance Act was enacted in the year of 1991 which covers all risks and
hazards and offers third party insurance against all injury or death caused by
any disaster or accident in any chemical manufacturing company, public place
including hospitals, hotels, malls, restaurants, multiplexes, schools etc[15]. This
insurance policy is not mandatory for all businesses and industries. But
industries operating with hazardous substances or environment must compulsorily
purchase this policy.
CATASTROPHE INSURANCE: THE ANOMALY
The existent void in the catastrophic
insurance market in India can be attributed to the distinct nature of the
catastrophic risk concerned. Catastrophic events are low probability events as
distinguished from other insurable events like a disease in case of a health
insurance or an accident or any damage in case of general insurance whose
frequency of occurrence is comparatively higher. Thus, it becomes easier for
the insurance company to ascertain the quantum of premium to be charged from
the insurance buyer. The uncertainty regarding the quantum of premium is also
because of the varied nature of the damages that can be caused due to a
catastrophic event. For example, natural disasters like earthquakes or floods
could lead to breakdown of houses for one and loss of agricultural property for
another, in yet another it could lead to damage to vehicles. Hence, there is no
parity in the scale of damages that might be inflicted due to a catastrophic
event.
Catastrophic events are high
intensity events that have the capacity to completely dissolve structures to
rubble and lead to havoc destruction of
property. The cost of the damages can reasonably soar up to lakhs and
crores of rupees given that homes and lands are the insurable assets. Plus,
these events affect communities at large comprising hundreds and thousands of
individuals and, hypothetically, even if only half of the population in the
disaster affected area has bought the insurance policy then also the claims can
go up to crores of rupees just by a single event at one point of time. Thus,
the insurance company can very well go bankrupt just by the happening of a
single disaster with claims worth crores or more at one point of time. The law
of large numbers, i.e., when the number of events are more, the probability
of the desired outcome is also more, on which the insurance business is
premised is rendered ineffective[16]. This is so because a large number
of people are affected by the happening of a single event and that too at the
same time. If the insurance company is
able to manage its solvency even then given the high value of the assets
involved, the premium charged would be very high. Considering the insurance
penetration in India is 4.2% for 2020-2021 as compared to countries like the UK
and the USA where it is around 11-12% for 2020-2021[17], high amount of premium would
further discourage the already reluctant Indian masses to buy insurance
policies.
CATASTROPHIC INSURANCE: THE NEED
Reparation, restitution and
rehabilitation lies at the core of India’s victim compensation jurisprudence
and in the aftermath of a catastrophic event, given the lack of catastrophic
insurance coverage, the government is the primary entity that enables the same.
However, the effect of the government compensation is often inadequate or
misdirected due to preponderating circumstances.
The inordinate delay in government
funded revival and restoration programs often stem from factors like -
identification of genuine beneficiaries, verification of documents, political factors,
centre-state fund tussle among others. For example, cyclone Fani which ravaged
the Odisha coast in 2019 and wreaked havoc on thousands of families residing
thereat, is a case worthy of mention. Even after a period of six months of the
disaster, no compensation had reached many affected families[18]. Government officials had conducted
surveys to assess the extent of damage but the names of the beneficiaries had
conveniently been scrapped out of the final list and compensation was avoided,
either totally or partially. Further, political affiliations also shaped the
amount of compensation and many families received the compensation twice while
others did not at all. Often the worst hit of these disasters are the poor and
marginalized communities whose documents are often not well preserved in the
aftermath of a disaster or sometimes, even before it. Almost all government
funded schemes require the beneficiaries to
physically report to the concerned offices of the local administration
with the required documents which is strenuous and time consuming. This was the
case of the Kerala rains of 2021[19]. In contrary to this, private insurance claims can only
be received by the one who has purchased the policy after submitting the
relevant documents and the transfer of money is completed within a period of
ten days which can extend up to two months in the face of gross irregularities.
The Disaster Management Act (DMA),
2005 is the legislation regulating disaster management funds in India. In the
case of Gaurav Kumar Bansal v. Union of India, the court applied the
provisions of the Disaster Management Act of 2005 in the case Uttarakhand
floods of 2013 and observed that the severe effects of the calamity could be
mitigated if the State Government took adequate measures[20]. Section 2(d) of the Act defines
‘disaster’ as a natural or man-made catastrophic event beyond the control of
man which leads to significant loss of life and property while section 2(e) of
the Act defines ‘disaster management’ as coordinated and integrated processes
comprising prevention, preparation, assessment, etc measures aimed at an
effective management and mitigation of disaster . Under the Act, two funds
namely the NDRF (National Disaster Response Fund under section 46 of the Act)
and the SDRF (State Disaster Response Fund under section 48(1) of the Act) have
been constituted. The Union Government is solely responsible to transfer funds
to the NDRF while the funds to the SDRF are shared between the States and the
Union in a 75:25 ratio[21]. In the event of insufficiency of
the funds in the SDRF, funds can be transferred from the NDRF to the
States. These structure of release of
these funds are based on the recommendations of the Finance Commissions set up
under article 280 of the Constitution. The fund transfer from the NDRF are
based on the twin factors of the need of the states and the severity of the
disaster, there being lack of clarity on the premises to measure the latter[22]. States, therefore, sometimes have
insufficient funds to spend on disaster relief. Such is the case for Telangana.
In reply to a parliamentary question from an MP, the matter surfaced that no
funds have been released from NDRF to Telangana during 2018-19 to 2021-22 even
though the state had been reeling under the effects of major floods in 2020 and
2022[23]. If a part of the fund comes from
private insurance sector, then the the problem arising from the above tussle
can have a lesser impact on the people.
It is stipulated that home insurance
policies cover the risk of a catastrophic event. However, there is lack of
truth in the statement. Currently, home insurance policies cover damages to
structures of homes like walls, roofs, etc. in the event of happening of any
catastrophic event, be it natural like earthquakes, floods, storms or man-made
like riots, terrorism, fire, etc. Under the IRDAI mandate Bharat Griha Raksha
Policy effective from April, 2022, most insurance companies also insure
belongings along with the house like HDFC Ergo, ICICI Lombard, Bajaj Allianz
among others[24]. However, none of these top players
of the insurance market insure lives of the insurer or their families in the
event of happening of a catastrophe. The insured has to buy it separately as an
add-on to the home insurance policy. Further, agricultural property is also
left out of the purview of home insurance. Agricultural crops can be insured
under government sponsored insurance schemes like Pradhan Mantri Fasal Bima
Yojana (PMFBY), National Agriculture Insurance Scheme (NAIS), Pilot Weather
Based Crop Insurance Scheme (WBCIS) and Pilot Coconut Palm Insurance Scheme
(CPIS). Apart from Agriculture Insurance Company of India Ltd., a few private
insurance companies like ICICI-Lombard, IFFCO-TOKIO, etc. have also been
allowed to roll out these schemes[25]. Private players cover losses to
shops, hotels, restaurants, godowns, warehouses, etc. under general insurance
policies. Livestock insurance is offered by both the centrally sponsored
Livestock Insurance Scheme under the arena of Rural Insurance and private
players like HDFC Ergo, ICICI Lombard, TATA AIG among others.
When a disaster strikes, the loss of
people and property is indiscriminate and along a wide range of materials -
houses, lands, shops, people, animals including livestock, etc. To insure the
aforementioned and more is to buy a plethora of insurance policies which most
certainly exacerbates the situation given the lack of will and awareness of the
masses regarding insurance policies. Thus, the multiplicity of policies and
lack of coverage of various perils under one coherent and overarching insurance
cover is a policy lacunae that needs to be swiftly addressed.
CATASTROPHE
INSURACE: AN INTERNATIONAL PERSPECTIVE
With each
passing year, the earth is witnessing an acute climate change and global
warming acting as a catalyst for a variety of natural disasters around the
globe. Aon’s 2023 Weather, Climate and
Catastrophe Insight reports that in the year 2022 economic losses from natural
disasters were estimated to be 313 billion dollars[26]. Hurricane
Ian[27] and
Hurricane Katherine[28] owes at
least 30% and 40% respectively to insured losses worldwide. Approximately 42%
of these losses were covered by public and private insurance companies with a
58% of global protection gap around the world[29]. Another
report by Aon 2020, states that number of reinsurance covers against natural
catastrophes have tripled over the last decade and still growing[30]. Munich re
in Germany is the world's largest reinsurance company serving more than 5000
clients spread across 160 countries around the world[31].
In the
United States, many private insurance companies’ do not cover catastrophic
insurances, reasons being catastrophic insurances are firstly, expensive and
secondly, states in the U.S. are vulnerable to a variety of natural disasters
and the insurance companies fear of going bankrupt[32]. The
federal government has come up with policies in states prone to specific
disasters and provides insurance pools for example, storm/hail risks, floods
etc. It covers only those residential and commercial clients who cannot obtain
a catastrophic insurance from private insurers. The sole financial backup of
these federal policies are from state funds.
In New Zealand,
the economy is stable. Therefore, the income of the citizens allows a higher
insurance penetration. The government provides catastrophic insurances such as
earthquake insurances that help in expediting the recovery of claims after such
major calamities without impacting the country’s growth and economy adversely[33].
In
Australia, the private insurance markets cover majority of the disasters and
indemnify against such losses. The private insurers play a major role; in
reducing the burden from the government by efficaciously manage the risk[34].
In Japan,
certain taxes are deducted from the income of persons by the government to
encourage them to purchase earthquake insurance policies[35].
Across the
globe, we find countries opt for government or private insurance policies
corresponding to their income and insurance penetration which is directly
proportional to one another. A complete government funded insurance can become
a burden on its taxpayers whereas a private insurance company can go bankrupt
in a major catastrophe event. So, a public-private partnership may bolster the
recovery and restoration of the lives of people.
CONCLUSION AND RECOMMENDATIONS
That ‘necessity is the mother of
invention’ is a well settled social principle.
The catastrophe insurance cover in
India is a major necessity the lack of which points its fingers at the
authoritative inaction. Social and economic justice are the guiding forces of
our Constitution and articles 39(b) and (c) enjoins the State to distribute the
wealth to serve the common good. Given that the marginalized are often the most
affected and the least served social class, insuring their lives against
catastrophic disasters should be seen as a form of Constitutional protection. A
welfare state can never truly progress unless the welfare of its people are
ensured. Further, the concept of Sustainable Development emphasizes on the long
term sustenance of the people and the planet. Disaster risk management saves
lives as well improves the overall health of the planet.
A few suggestions that could be
incorporated in a catastrophe insurance cover have been stated as under :
v Insurance premium of catastrophe
insurance should be kept at a minimum so that the masses at large can purchase
the policy. This could be ensured by a Private Public Partnership (PPP Model)
of catastrophe insurance where the burden is shared by both the sectors.
Government subsidies that currently operate in the Rural Insurance Sector can be
used for designing the blueprint of catastrophe insurance.
v As has already been established,
catastrophic events affect masses and materials at large. Separate policy
covers for each risk should not be the case and domestic animals, livestock,
agricultural land, vehicles, etc. should all be covered under catastrophe
insurance so as to avoid multiplicity of policies. The effectiveness of the
cover can, thus, be maintained.
v Catastrophe insurance is often
restricted to the areas of material injury like lands, buildings, etc and the
question of physical injury is often left unattended. Health insurance should,
therefore, be included within the purview of catastrophe insurance. The health
of the insured and his family members should be incorporated within the
catastrophe insurance policy. In fact, in the aftermath of a disaster the
psychological condition of the disaster hit are also affected - be it trauma,
stress, PTSD, etc. Thus, both physical and mental health of the insured must be
within policy coverage.
v The wide range of the effect of
disaster should be of immense materiality. It should not be that one type of
damage is measured in the yardstick of the other. For example, an earthquake
might lead to a crack in one house and utter destruction of the other. The
former should not be denied insurance claim by comparing it to the destruction
caused to the latter. Thus, an appropriate catastrophe insurance should be one
that takes into account the diverse range of impacts that a catastrophe is
capable of causing.
Thus, it is imperative that
governments take into consideration the urgency of the situation and act upon
it with sincerity and vigour.
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Article Information
THE IMMINENCE OF CATASTROPHE INSURANCE IN INDIA : THE JOSHIMATH DEBACLE AND ASSOCIATED CONCERNS BY: MEKHLA CHAKRABORTY & SHILPI GHOSH
Authors: MEKHLA CHAKRABORTY, SHILPI GHOSH
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/05/01
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
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