A disaster pool is the best insurance to bridge protection gap

Protection gap or the losses that are uninsured is almost neglected in a country like India. We are already aware of the irreparable damage done by natural disasters like the recent floods in north India and the Biparjoy cyclone in Gujarat. It is believed that this in the range of Rs 10,000-15,000 crore. India ranks third in terms of the highest number of natural disasters since 1900. Of the total $284 billion global economic losses, natural disasters resulted in $275 billion in 2022, of which $125 billion were covered by insurance. The overall protection gap has increased to $ 151 billion in 2022, which is much higher than the 10-year average of $130 billion but is still at around 54 per cent of the total losses uninsured. For starters, this is less than the 61 per cent average protection gap in the previous 10 years. For India, this figure is a staggering 92 per cent. In effect, an average Indian is insured of roughly eight per cent of what may be required to protect a family from the financial shock following the death of the breadwinner. This means, as per a study by Ecowrap, having savings and insurance of just Rs eight for every Rs 100 needed for protection.

It is equally dismal in the MSME sector, where only five per cent of units are insured. The Union government ought to contemplate a partnership program to cover MSME employees and provide social security to them in terms of insurance benefits and income protection for their families by way of an insurance scheme for the promoters to cover losses due to reasons beyond their control. The contours of such a programme could involve bonus to MSME entrepreneurs for running business sustainably for more than 10 years, with regular payment of interest to banks and taxes. Even the banks can annually provide 0.5 per cent of interest earned into a linked account. After a successful run of the business with no default, the corpus build in the lien marked account should be paid to the borrower as a recognition for maintaining financial discipline. The rider should be that it should be used only for the welfare of the employees.

Under PM-JAY, which today has 120 million beneficiaries, the effort should be to provide affordable quality healthcare to more and more citizens. The Centre can provide PM-JAY to all the residents with OPT-IN facility.

Insurers do activate their CAT (catastrophic) event protocol and depute dedicated claims team to handle such claims. But in the absence of protection, they can’t do anything beyond that. A disaster pool, on the lines of nuclear and terrorist Pools, is urgently needed for securing against natural disaster damages.