The Insurance Regulatory and Development Authority has been mulling establishing an earthquake pool in India.
The proposal is expected to be submitted in the next few months.
C S Rao, chairman, Irda, told Business Standard, "We are exploring the possibility of an earthquake pool for which we had started work a month and half ago. It is important like the terrorism pool as the damage to human lives and economy is very high and will be an optional cover."
Rao pointed out that they are yet to work on details such as the maximum limit of insurance cover, coverage of people, and what would be the re-insurance arrangement.
The lower and middle class cannot afford to cover themselves against an earthquake therefore they will be targeted at subsidised rates. However, nothing has been finalised and it is in the preliminary stage, he added.
Industry sources said that a technical expert committee is being formed to study the earthquake zones, classifying different parts of the country depending upon the intensity of earthquakes. There still are no specific regulation followed while constructing huge structure in earthquake prone zones.
The Indian re-insurance company, General Insurance Corporation India, managing director, P B Ramunjam, said, such a pool is essential. If the cumulative loss exposure are large on account of earthquake, GIC will not be able to bear it.
The Indian 'terrorism pool' offers cover up to a sum assured of Rs 300 crore (Rs 3 billion). GIC currently manages the fund. The terrorism pool was established in April 2002.
The fund was formed jointly by the public and private insurance companies. The contributing share of each company was directly related to its premium income.
Ramunjam said, "While forming the earthquake pool, its upper limit has to be fixed. The structure of the earthquake pool also has to be decided, whether it should be a limited company or be designed on the same lines as the terrorism pool. Whether a dedicated team would be required to run the pool is also to crystallized."
The worst earthquake to hit India since Independence has been the Gujarat earthquake at Bhuj on 26 January 2001. It inflicted an estimated loss of Rs 21,262 crore (Rs 212.62 billion).
The insurance cover paid on this was Rs 500 crore (Rs 5 billion), which was also fully re-insured. It measured about 7.9 on the Richter scale. Earlier to the this, the Maharashtra earthquake hit at Latur and Osmanabad measured 6.9 Richter scale in September 30,1993.