Insurance Article, The Insurance Times 2021, The Insurance Times June 2021

Tropical Cyclones – A Challenge to Indian General Insurance Industry

Tropical Cyclone is a hazard experienced on sea coasts in the tropical regions of the earth and is known to man for many centuries. They have caused catastrophic havocs in terms of loss of human lives and damage to the assets on the coasts.

India is blessed with a long coast of 7516.5 kilometers covering both the east & west coast. The sea ports are gateways to international trade resulting in port cities with large population and creation of huge capital assets. Mumbai developed into commercial capital of India since it was a port city. Similarly port cities on the east coast such a Chennai, Vishakhapatnam, Paradeep, Haldia while Gujarat has well developed ports growing very rapidly.  Refineries and downstream plant complexes are generally located in & around the port cities. The population of the port cities is ever increasing and so there are consumer industries to meet the growing needs of ever increasing population. About 80 cyclones hit coasts ion the tropical regions of the earth every year and about 6% hit Indian coast. Thevulnerability of the port cities therefore is increasing with no tools available to assess & quantify the risk of Tropical Cyclone and to control it to acceptable/insurable level.

A lot of data is available in terms of regions prone to Tropical Cyclones, their intensities & frequencies. The effort however is directed towards predicting the Tropical Cyclone track and giving early warnings and to save lives. The human losses are reduced substantially in the 21st century. Thanks to the satellites and the early warning systems developed by meteorological offices world over and the disciplined evacuations carried out by the local governments. But the Tropical Cyclones continue to cause enormous economic damages/losses.

However, there is no actionable Tropical Cyclone Risk Assessment at the location where an individual has assets or wants to build one. If an individual gets the Risk Assessment Report at his location then he can make a well informed decision to build the assets which can withstand the fury of the Tropical Cyclone and would enable him to come back to normalcy within a short period of time or alternatively can opt to shift the location or to transfer the risk at acceptable level to Insurers.

But the challenges before the Insurance companies are very high. A Tropical Cyclone catastrophe can pose a problem of underwriting viz. premium to be charged may not be reflecting the risk exposure.Also since this is a catastrophic event, Insurance companies may be exposed to number losses/claims in one catastrophic cyclone event which can result in affecting the balance sheet of Insurance companies adversely and sometimes wiping out the capital. On the other hand conservative approach in Underwriting such as applying high tariff rates may make many Insured not to opt for the cover while only those Insured opting for it are exposed to the peril, leading to selection against Insurer.

There are three types of catastrophic hazards in a Tropical Cyclone viz. High Winds/Gust Winds in kilometers per hour, Flash Floods caused by heavy downpour in a short time causing damages by high velocity of water, its depth& duration and Storm Surgeswashing out assets near the sea coast causing heavy life and property losses. We are not able to stop the Tropical Cyclones nor can we stop economic development. But what we do then?

The only option left is we assess the risk we are exposed to and make efforts to reduce/mitigate it.

First step is to know the risk. Where you are located or plan to put up your assets (identified by Latitude/Longitude), to know the exposure to the following hazards precisely:

  • Velocity of wind in kilometers per hour,
  • Quantity of rainfall in centimeters. Not millimeters.
  • Height of Storm Surge in meters and its depth inland

Second Step is to know how many Tropical Cyclones may hit your client location and also to know their intensities in the next ten (10) years.

The above two steps will enable Insurance companies to Underwrite an individual risk based on realistic Maximum Probable Loss (MPL) estimate and also to plan Reinsurance strategy on accumulated MPLs to face the Tropical Cyclone catastrophic hazard.

Unity Geospatial LLP has developed a web application ‘TROPCYC’ is now available for use at the click of the mouse. But it has to be on sound foundation, reliable to meet the need of the Insurers.

Data

Tropical Cyclone data in the form of Tracks of Cyclones of India Meteorological Department (IMD) from the year 1891 to till date and also published reports of (IMD) on Tropical Cyclones were studied and the data collected from them meticulously. From the year 1990 data & tracks of cyclones & reports are available on the website of IMD while the report & Tracks of Cyclone available in paper format in the library of the IMD at Pune. IMD reports were available from the year 1948 onwards up to the year 1989 were available in paper form. However IMD reports from the year 1891 to 1947 were not available though the Tracks of Cyclones are available and are used.

Tropical Cyclones which

  • Hit the Indian Coast only are considered. Those cyclones which dissipated over the sea or weakened before hitting the coast are not considered.
  • Depressions & Cyclonic Storms which do not cause significant damages to reasonably built structures are not considered in the analysis but are included in the study.
  • Tracks of Tropical Cyclones with intensities of ‘Severe to Super Cyclonic’ storms and higher intensities are only considered in the study.Wind Speeds, Rainfall & Storm Surge data is derived from IMD reports.
  • Storm Surge Zones as defined & published by Indian National Center for Ocean Services (INCOIS) – ESSO at Hyderabad on their website are used. INCOIS – ESSO is an Indian Government authority to issue warnings on Tsunami caused by Earthquakes and Storm Surges caused by Tropical Cyclones. INCOIS – ESSO does not give penetration of sea water on land during the storm surge and the same is inferred from IMD reports.

Data Analysis

  1. With GIS based data analysis, we have developed Web-based application, this application enables marking of the location of the client correctly using its Longitude/Latitude.
  2. Four damage zones viz. Red Zone (with high wind speeds & Flash Floods), Yellow, Blue and Green (No hazard) Zones are marked on the coast of India using the Tracks of Cyclones and radial damage distances from tracks of cyclones are derived from the paper “Some Characteristics of Surface Wind Structures of Tropical Cyclones over the North Indian Ocean”, Journal of Earth Sciences, 124, 1573 – 1598.
  3. Storm Surge zones are marked on the coast of India as defined by INCOIS on the coast line and sea water penetration on land is as given in IMD reports.
  4. Probable decadal frequency of Tropical Cyclones & their intensities for zones identified by IMD are worked out using Stastical method.

Web Application (Software)

The website TROPCYC developed by Unity Geospatial LLP has classifies coast of India into Red (Extremely hazardous zone), Yellow, Blue & Green Zone (No hazard Zone) and produces a Report on “Risk Assessment of Tropical Cyclone” (see sample copy of the report) at the client location identified by using Longitude & Latitude. The report tells the Insurer:

  • Whether the location of the client falls under Red/Yellow/Blue/Green zone. It also tells the client wind speed & rainfall he should expect during a cyclone event.
  • How many cyclones & their intensities that may hit the client location in next ten (10) years.
  • Describes in general vulnerability of the property and loss prevention tools available.
  • The report supports the above by giving full history of weather disturbances and also major cyclones that hit the location from the year 1891 till today in a tabular form.

Maximum Probable Loss (MPL) Estimates

MPL is used for Underwriting and Reinsurance in Insurance business by whole of the General Insurance Industry world over. Looking at the parameters of the Tropical Cyclone at the client location as given by the Risk Assessment Report of the web application the Insurance companies can fine tune their MPL Estimates to realistic levels. In our view Insurance Companies must analyze claims paid during latest 5 or 6 cyclones using our zones to arrive at realistic MPL Estimates.

Integration of the Web Application with Insurance Company Portals

  1. a) Underwriting

In today’s world everything is on line. Hence the integration of the web application with the computer portals of Insurance Companies is essential. It would give the Risk Assessment Report for client location & its MPL Estimate which when linked with forecast of Tropical Cyclones in the next 10 years would recommend optimum premium for the client and this can be done from any of the offices of Insurer.

  1. b) Reinsurance

Web application, similarly will produce highest accumulation of MPL Estimate on a real time basis and help plan Reinsurance Strategy.

In addition to working out MPL & Accumulation of MPL Estimates the integrated web application would provide following services:

  • Insurance Company can underwrite their Tropical Cyclone business from any of their offices.
  • Loss preventions and customer education can be done effectively.
  • In case of a cyclone, the application would produce list of clients likely to suffer damages and it also can list the clients who would suffer severe damages. This can help the Insurance Company to arrange the Loss Adjusters and support the worst affected clients financially in a calamity.This would go a long way in getting loyal& satisfied customersand marketing in future with mouth publicity at no costs.
  • Early sending of the Loss Adjusters to the clients would also help in reducing exaggerated/ fraud claims.
  1. c) Loss Prevention

Loss prevention is an important aspect of service to the Insured. It is duty of Insurers to pass on the lessons learnt in the past cyclones to their clients to reduce losses and keep the risks at acceptable levels -a service to the whole Indian Society. Insurers can advise on following areas:

  • To strengthen the structures and in particular roofing systems which are suffer heavy damages by high velocity winds of the Tropical Cyclones/Hurricane. To avoid top heavy or asymmetrical structures.
  • To open up & clean the natural drainage channels on the ground to allow flow of water smoothly to avoid flash floods.
  • Storm Surge – To relocate to safer location.
  • To prepare a disaster management plan for actions to be taken when the cyclone warnings are issued by the authorities and one after the cyclone to return to normalcy within the shortest time. Plan must take into account the total disruption of all services viz. no food, water, communications, rail/road/air traffic, banking, repair facilities etc.

Global Warming and Climate Change are real issues facing the world. According to IMD there is 32% rise in Tropical Cyclones hitting India. Arabian Sea is becoming fast hotbed for the Tropical Cyclones and can have a tremendous impact the west coast of India. There is also a rapid intensification of cyclones difficult to give early warning to the communities.

The need of the hour is a web application like TROPCYC which gives at the click of the mouse Risk Assessment to help do business of insurance professionally to protect their clients as well as keep their business on sound principals and profitable.

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