Cat risk and insurance reform in focus at Parima, Mumbai

Parima meets in Mumbai for its second conference of the year shortly after its busy and successful meeting in Manila. Leading Indian risk managers and members of Parima have gathered for a busy day, with presentations and panel debates with representatives of the Indian insurance regulatory authority IRDAI and leading local insurers and brokers, as well as prominent local Parima members. Climate change, catastrophe risk, the transition to net zero and the critical and evolving role of the insurance market is to take centre stage, much as it did in Manila. The central and increasingly important role of the corporate risk and insurance manager and need for further recognition of the value it brings will also be on the agenda. India is set to become one of the world’s leading economies and already plays host to a fast-rising number of significant national and multinational firms. Awareness among Indian business leaders, regulators and the government itself of the value offered by professional risk and insurance management has risen in recent times. This has occurred, not least, because of the dawn of the era of the permacrisis and much sharper focus on business resilience post-Covid-19 and in light of the escalating impacts of climate change. It is also being accelerated by the geo-political tensions sparked by the war in Ukraine, conflict in the Middle East, the Houthi rebel attacks on shipping, tensions between the US and China and of course Taiwan – all leading to increased concerns over supply chain risk. The recent spread of the Houthi threat to the Indian Ocean is testament to this. The Indian business community is also increasingly aware also of the value of strategic insurance management, using insurance and other so-called alternative risk transfer options such as captives and parametrics to not only help cash flow with claims payments but also stimulate improved risk identification, modelling and transfer. This was why Parima held its first event in Mumbai at this time last year with the theme ‘adapting to permacrisis’, which was a great success, and why it returns to the same city today with the theme ‘global risks – Asia’s response’. It should come as no surprise that climate change and risk mitigation takes centre stage at this event. All Parima members and their peers across the world are focused on the effects of climate change currently as the stakes rise and a proper response is needed at corporate, sectoral and state level. The interconnected nature of climate change risk makes it all the more challenging as it is no longer just about physical asset protection and where to locate your factory. It is also about critical supply chain risks, stresses and strains on staff and customers, migration and wider societal changes. This is absolutely clear in India, which is thought to be the fifth-most vulnerable country in the world to climate change risk. India’s corporate risk managers and their corporations have an important role to play in de-risking the environment for the Indian economy and population in the face of this volatile backdrop. Risks need to be taken if the Indian economy is to fulfil its huge potential, with wealth spread more equitably throughout the population, delivering a more stable and sustainable future. But they need to be carefully considered risks, taken on the solid foundation of risk-based decision making that also take wider environmental and societal impacts into account as much as profit. The insurance industry has a big role to play in helping support the Indian economy shift to a more sustainable future, not least in the critical area of energy and the effort towards net zero. The Indian insurance supervisor – IRDAI – is well aware of the sector’s critical role and is making efforts to accelerate the liberalisation of the market to make it more flexible, dynamic and customer friendly. The supervisor revealed significant changes through a market circular on this matter only days before the Parima Mumbai meeting. Steps have also been taken to open up the Indian market to the international reinsurance market and promote the development of its own reinsurance hub. This is critical for the commercial and corporate market as it attempts to support Indian corporations in the more complex specialty lines, renewable energy and the like. Thomas Devasia of IRDAI today explains to Parima members where the insurance market is headed and Parima members will be listening closely to what he has to say. Of course, a further session focuses on how captives and alternative risk transfer more broadly can “supercharge” risk management, and the two sessions are intrinsically linked. India needs a supervisory structure that welcomes the formation and use of captives and recognises the value of the ready access to reinsuranceand capital market solutions from the local and international markets. Proposals to change the definition of captives to make them more attractive to create in India were made a couple of years ago but did not make it onto the recent raft of changes. It is hoped that IRDAI will get the green light from the new Indian government to take this bold step forward, and next year’s Parima Mumbai conference will be talking about the first Indian captives and creation of the Indian Captive Owners’ Association! This may be a little optimistic but remember that very few would have thought the French Treasury would have given the green light to the formation of ‘onshore’ captives in France only five years ago, and now it’s happening. The French government has used the harsh experience of the failings of the commercial insurance market to rise to the business interruption challenges created by the Covid-19 lockdowns to finally accept that captives are actually a good idea to help bolster the French economy and build true resilience and a focus on loss prevention and risk management. Hopefully, IRDAI and the new Indian government will take note and recognise the pivotal role that sophisticated self-insurance can play, along with wider access to reinsurance and the wider capital market solutions on offer. True to form, Parima has chosen the really big themes for its Mumbai event and rightly so, for unless these themes are properly and openly discussed, the significant progress that needs to be made in this critical area cannot be made.

Cat risk and insurance reform in focus at Parima, Mumbai

Captives and wider solutions need to be on agenda

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