Plight of Kolonnawa flood victims After one year:
Sitthy Aisha found her ideal home in a narrow lane in 100 Watte, Kolonnawa eight years ago. A single storey house is what she could afford with her meagre living as a dressmaker and a deadbeat husband. Over the eight years, she saved up enough money to add another floor to her house and as her house changed, so did her neighbourhood. She was also not the only new resident to the neighbourhood in 2009, this was the same year that the Meethotamulla garbage dump moved into their area and drove down further property values in the area.
In 2016, tragedy struck in the form of the May floods and her home was inundated with toxic water that had flown through the Meethotamulla dump. Kolonnawa was one of the worst hit areas due to the floods and residents had to not only deal with flood water but also disease and sanitation problems due to the dump.
“I had to replace the electrical wiring, fix the cracks that had appeared and repaint the whole house. More importantly I had to spend a lot of money on cleaning up the dirty water,” said Aisha disgruntled, with the government compensation she received to rebuild her house one year later.
Aisha was one of many 427,918 people who were affected by the floods and landslides which took place in May 2016. The Ministry of Disaster Management recorded 474 houses to be fully damaged, with 3,674 houses partially damaged due to floods and landslides.
The floods took place six weeks after the government had taken out a national natural disaster insurance policy for all citizens in the country and it is this that would provide all with the basic funds to get back on their feet.
National Natural Disaster Insurance
“The natural disaster insurance scheme was introduced in April 2016. The Ministry of Finance took the policy from us with the intention of covering the uninsured public; especially those in the lower income groups who would not otherwise have access to insurance,” said the National Insurance Trust Fund (NITF), Chairman Manjula de Silva.
The NITF was initially established in 2006 as a statutory body to offer Agrahara Insurance to the public sector employees. In addition they also offered insurance to cover strikes, riots, civil commotion and terrorism. They also offered re-insurance, which is compulsory, to all insurance companies in the country.
The 2016 natural disaster insurance scheme was far sighted at the time and made use of the NITF’s reinsurance policy. The NITF guaranteed Rs 100,000 in compensation for a death and a maximum of Rs 2.5 million for property damage to houses and small and medium enterprises (turnover less than Rs 10 million).
“There was no insurance scheme for natural disasters earlier. Whenever disaster struck, the government would have to cough up whatever compensation through the Treasury. This took a heavy toll on the Treasury and made budgeting for the year unpredictable. With us taking on the risk, it makes it easier on the Budget,” explained de Silva.
The insurance scheme also ensured that all affected parties would at least get the minimum of compensation rather than having to wait for the government to dole out any amount they fancied. The scheme also meant that the amounts would not change with the changing of government.
The NITF has also re insured with other global re insurers such as Munich Re, Allianz and part of the Lloyds market, so that they would not have to take on all the ‘risk’ and it also allowed them to claim compensation from these insurers, when the toll was too high.
The floods
When the floods struck, the NITF had to gear up for action.
“Immediately after a disaster, the people have to be provided with immediate relief in terms of food and shelter. Hence we released Rs 131 million for immediate relief through the Ministry of Disaster Management. Thereafter, we found that 60,000 houses had been affected to different degrees. For this we gave Rs 10,000 as an advance to each household at a total cost of Rs 602 million,” said De Silva.
Once the initial needs were met, the government started to conduct assessments of all property damages. The assessments conducted through Divisional Secretariats and other agencies has taken over a year to complete and this has left many complaining that the government has not provided many flood victims with compensation as of yet.
De Silva however assured that most claims have been settled by now,
“We have received 56,000 claims for property damage and contents. Even contents were covered. Out of that, we have already paid 26,000 claims. Many came in recently; it took a long time for the assessment process to conclude. We have paid Rs 1.5 billion in claims. There are about 28,000 more claims which have reached the final stage and we will settle them soon.
We paid most of the claims from outstations already. It was only the ones from Kolonnawa and Kaduwela, the more affected areas which got late, they only came in March this year. We are processing claims worth Rs. 1.2 billion from Kolonnawa and Kaduwela. We also have another Rs 1.1 billion pending and they need to be checked more,” explained de Silva.
Most of these claims however, are for smaller amounts. “Though the numbers are large, the claims are very small as the worst affected are small houses but they can be re-built easily. Bigger houses can easily take it, they have minor repairs and the house would not collapse,” he added. In total, the floods cost the NITF Rs 3.8 billion in claims, a colossal sum which would have taken a hit on both the NITF and the Treasury.
“Because we have re-insurance, we don’t have to pocket out the whole amount. We only have to bear the first Rs 500 million and 20 percent of the balance amount. Thus, we recovered around Rs 2.6 billion from our re insurers,” he said.
Not sufficient?
While the insurance scheme has worked well for the government, not all are satisfied with the compensation amount.
Aisha complained that she only received Rs 10,000 and was not given the rest as of yet. She explained that this was barely sufficient to cover all her expenses. While she waits for her balance payment, the NITF Chairman stressed that they could not raise the threshold for claims too much as it would cause protest among private insurance providers who would not be able to sell their own schemes to the public. In addition, the government would have to pay greater premiums for higher claims.
De Silva once again emphasized that the government insurance scheme was for the worst affected and not for those who could afford to take out private insurance schemes.
For the government however, the natural disaster insurance scheme has come in handy over the last year and it has come to the rescue many a time. With climate change increasing the frequency of natural disasters however, insurance premiums are likely to rise. Last year (April 1, 2016 - March 31, 2017), the government paid an initial premium of Rs 300 million, but after the series of disasters, the NITF requested that the premium be increased. This year they have approved Rs 500 million as the yearly premium payment,
“It is still insufficient, I would be more comfortable with around Rs 700-800 million in premiums,” said de Silva.
Other disasters
The call for higher premiums is not unjustified as last year was also a bad a year for natural disaster insurance payments. Apart from the floods, the NITF had to also pay for compensation to victims of the Aranayake landslide.
According to the chairman, they have thus far paid 86 claims worth Rs 3.7 million to “compensate against partial damages to houses, damages to contents, etc.” He added that claims have not been submitted as of yet by the Divisional Secretary in respect of 72 fully damaged houses. “I believe, there is a delay in finding alternate land. We have made adequate provisions to pay these claims and are ready to pay them as soon as they are submitted”, said de Silva.
The Salawa tragedy however was not covered by the NITF as it was neither a natural disaster nor was it an act of terrorism.
This year, we had the Meethotamulla disaster. “We received a scientific opinion from the National Building and Research Organization (NBRO) and Meteorology Department which said that the proximate cause for the collapse on that day was heavy rain which increased the weight of the dump and caused it to collapse. On that understanding we agreed to pay compensation,” said de Silva.
The NITF however can only cover the basic insurance and given the circumstances of the collapse, the President had made a decision to add to the basic cover to increase the compensation amount.
Apart from this, the continuing drought and the resulting crop failures have added to the burden of compensation. The Agrarian Insurance Board generally pays for crop damage but since last year, the claims have been too much for them to bare alone.
“We collect the crop levy charged from all financial institutions and this year we have been asked to support the Agrarian Insurance Board, meet its claims. We have already released Rs 1 billion for crop insurance claims and an additional Rs 500 million is to be released soon. But we cannot go beyond that,” said the NITF Chairman. Further drought claims would thus have to be met by the Treasury.
Making insurance sustainable
Unlike other countries, many of these insurance schemes are offered more or less free to the public with the general public paying little or nothing in return.
“It is true that this is not exactly insurance, as insurance is a contributory scheme. For example, the farmers have not contributed to crop insurance but get the money anyway. There is a question of sustainability in the long term,” said de Silva. But Sri Lankans are not likely to pay for natural disaster insurance anytime soon.
Despite the floods, Aisha is not interested in taking on a private insurance cover for her home. Her neighbours in the meantime, have considered taking on a policy but none of the private companies are willing to insure them, given that the area had already been flooded and was next to the Meethotamulla garbage dump.
Fathima Samad, who lives a few streets away from Aisha has better means, but her house too was not insured. “We never thought our area would flood,” she said.
Whether the people are too ‘risky’ to be insured or are not interested in insurance, de Silva noted that natural disaster insurance would be as important as car insurance in future. “People never think it will happen to them. Until they themselves experience it, they do not know the importance of it,” he said.
The NITF
As insurance becomes more important, the NITF has turned into one of the few government agencies which are profitable.
“Despite the risks, we have maintained our finances and AA minus rating from Fitch. In 2016, we contributed Rs 3.2 billion to the Treasury as profit. Some years it was Rs 4 billion,” said de Silva.
Peace too has contributed extremely well to the NITF’s profits which was earlier to doling out more money in claims for incidents of terrorism and riots.
Natural Disasters however are not all that bad for insurers, a report released by the Indian RnR Market research group in 2016 stated that while they expected the global catastrophe insurance market to grow at a CAGR of 5.49 percent from 2016-2020, climate change would be the main driver of the market’s growth.
“Recent extreme weather events have increased in frequency. As such, insurers must not rely only on historical data, but further refine their forward projections. Since the insurance industry is cyclical, insurance companies must learn to adapt and come up with strategies to bring in stable revenue to earn positive yields,” said the report.
They also stated that America would be the foremost market in terms of catastrophe insurance, with revenues of over US$ 47 billion by 2020, or over 65 percent of the total market.
The greatest challenge to the NITF however, is that it has no technical expertise to prepare the needed projections. The Chairman stated that they had sought the assistance of the World Bank in developing modelling scenarios, but they also needed trained professionals in the field to work with.
At present Sri Lanka only has 4-5 qualified risk engineers and a total of 10 qualified actuaries. “We often have to depend on international expertise,” said de Silva.
The increase in natural disasters also makes it harder to find re-insurers willing to take on the risk. “After our first year of claims, certain international insurers are reluctant when it comes to Sri Lanka.
When they pay such huge claims, it takes around 20-25 years to recover,” he said, but given the profits in the last few years through the terrorism and riot insurance covers, the NITF has maintained a good record with the re-insurers.
The NITF has is also a more stable company given that it has a base of 1.3 million government servants who take on the compulsory Agrahara Insurance Scheme. “The more people you have, the less riskier it is and more predictable it becomes,” said de Silva.
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