India’s reinsurance sector, especially in the realm of property catastrophe insurance, is facing significant challenges due to the escalating impact of climate change and the resultant extreme weather conditions, expert insights reveal.
Recent trends indicate a sharp increase in the frequency and severity of weather-related disasters, including storms, floods, and wildfires, leading to substantial hikes in reinsurance rates for property catastrophe coverage.
A report from Business Today revealed that from December 15, 2023, rates have surged by 20-22%, following a 25% increase on April 1, 2023, cumulating in a rise of up to 50% within a nine-month span.
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Sanjay Kedia, CEO of Marsh McLennan India (MMC) and president & CEO of Marsh India Insurance Brokers, noted the direct correlation between the uptick in extreme weather events and the increased cost of reinsurance.
“The rates for reinsurance on property catastrophe insurance have significantly increased due to the rise in extreme weather events,” Kedia said. “Whether it’s floods, storms, or wildfires, these perils are occurring more frequently and causing greater damage. Naturally, with higher probabilities and increased damages, reinsurance rates have risen, impacting insurance market rates globally.”
In India, the scenario is further complicated by the regulated nature of storm, tempest, flood, and inundation (STFI) rates, which are set by insurers rather than dictated by market forces. This setup suggests that rates for the upcoming renewal season, typically in April, are poised for an increase.
Kedia explained the nuanced dynamics of the Indian market, highlighting the regulatory push towards more competitive pricing in areas outside STFI coverage, which has somewhat moderated the overall rate increases.
The determination of rates is highly individualized, taking into account factors such as the type of assets insured and the effectiveness of risk management practices. Despite this variability, the overarching trend points to rising rates, with the full impact expected to be evident in the forthcoming renewal period.
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