Floods continue to wreak havoc in Andhra Pradesh and Telangana. Gujarat suffered similar devastation due to heavy rains between August 20 and 29. Every year, states like Assam, Odisha, Uttarakhand and Himachal Pradesh suffer from floods that cause massive material damage. The financial burden of such destruction can sometimes bankrupt individuals and businesses.
How can you protect yourself if flooding is common where you live? The answer is insurance.
Are there specific insurance policies for flood damage?
There are no dedicated policies that cover flood-related damage only. However, flood protection can be found within broader insurance policies. “Flood insurance is available through the standard fire and special perils policy and the homeowners insurance policy,” says Sandeep Katiyar, co-founder and CFO of Finhaat. “Fire and perils insurance covers damage caused by various events such as riots, strikes, floods, storms and cyclones.”
Individuals and institutions can opt for these policies. STFI (Storm, Tempest, Flood and Inundation) is a named peril in Irdai’s standard products like Bharat Udyam Suraksha Policy, Bharat Sookshma Udyam Suraksha and Bharat Griha Raksha Policy. Katiyar explains that these products are designed to protect against various natural disasters, including floods.
What is STFI?
STFI is an add-on that extends your fire insurance policy to cover additional natural disasters, such as storms and floods. While fire insurance primarily focuses on fire-related damage, STFI coverage ensures protection against other disasters, such as storms and floods, that can occur at any time.
Protection of commercial property
In addition to the coverage offered by the government, protection of commercial properties such as shops, offices or industrial buildings requires comprehensive insurance. “Many property insurance plans can be enhanced with a flood coverage add-on, which provides protection against damage related to floods, waterlogging and other water-related incidents,” says Sajja Praveen Chowdary, Director, PolicyBazaar for Business.
Major flood insurance plans include:
* Standard Fire and Special Perils Policy (SFSP): Protects commercial buildings, equipment and inventory from a variety of perils, with the option to add flood coverage.
* Insurance Policy for Merchants: Designed for small shop owners, this policy covers property and inventory, with a flood insurance option.
* Office Package Policy:Provides comprehensive coverage for office facilities and equipment, with flood protection to keep business operations running.
* Industrial Comprehensive Risk Policy: Provides comprehensive coverage for industries, including flood-related damage.
What about home insurance?
Homeowners have access to the Bharat Griha Raksha policy, a standard home insurance policy launched under Irdai. “This policy offers coverage for up to 10 years and includes automatic protection for both the building and its contents, up to 20% of the insured value of the building,” says Suryanarayanan V, managing director, Chola MS General Insurance.
“For example, under the Centre’s affordable housing scheme, houses valued between Rs 15 lakh and Rs 25 lakh are automatically covered for general contents like white goods,” he explains.
These home insurance policies cover a wide range of risks, including damage caused by floods, storms and cyclones. They not only protect against structural damage, but also cover additional expenses such as repainting due to water marks caused by heavy rain. Premiums vary depending on factors such as location, property type, age of the building and construction material.
However, in some cases, assessing damage after a flood can be complicated, making it difficult to settle claims. “For these situations, an alternative product has emerged – parametric flood insurance. “Parametric insurance operates on predefined parameters and when these are met, payouts are triggered immediately,” explains Katiyar.
Unlike traditional insurance, which requires damages to be assessed after an event, parametric insurance is based on measurable parameters such as rainfall levels or wind speed. When these predetermined thresholds are exceeded, the insured receives compensation without the need to assess individual losses.
“Parametric insurance bridges the gap between increased flood risks and conventional insurance limits. Instead of compensating for the actual loss incurred, parametric products offer payouts when predefined thresholds such as rainfall or heat index are exceeded. This makes the claim process faster and more transparent,” says Katiyar.
How does parametric insurance work?
Parametric insurance works by using predetermined metrics, such as accumulated precipitation or wind speed, to trigger payouts. This method avoids the need for individual loss assessments, allowing funds to be disbursed quickly.
For example, a parametric policy for flooding caused by heavy rainfall could be structured around cumulative rainfall data. If rainfall in a region exceeds a set threshold over a given time period, policyholders receive compensation. The payout increases with the level of rainfall up to a predefined limit, providing timely financial support without the need to assess physical damage.
Relatively new, the parametric method is available in India.
“We have offered our customers the product for excess rainfall. This product was designed to protect against the risks of low occupancy of warehouses arising from possible excess or deficiency of rainfall, affecting agricultural production. This initiative covered warehouses spread across 17 states,” explains Katiyar.
The growing importance of flood insurance
“As climate change accelerates, the frequency and severity of flooding has increased worldwide. According to the World Bank, cities have expanded into high-risk flood zones by 184% since 1985, exposing more people to flood risks. In India, floods have caused an average of $18 billion in annual economic losses over the past five years,” says Chowdary.
He also notes that businesses need to rethink their risk management strategies. “Property insurance that covers flood and other disaster risks is a critical component of comprehensive coverage, helping businesses mitigate financial losses resulting from increasingly unpredictable weather patterns.”
Recently, the Indian Finance Ministry directed public sector insurance companies to ensure prompt settlement of claims of those affected by floods in Andhra Pradesh and Telangana.
“Insurance companies have been instructed to ensure speedy settlement of claims by organizing special camps and facilitating claim processes to provide relief to those affected,” the ministry said in a post on X.
Additionally, insurance companies have been asked to widely publish the contact details of nodal officers, so that it becomes easier for policyholders to get assistance during these difficult times.
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