Government should provide tax exemptions for home insurance in view of damages due to disasters
Damage Due to Floods and Earthquakes
India’s major cities are prone to floods. Mumbai experienced its worst ever flooding in July 2005 causing an estimated direct loss of about ₹550 crore. In June 2005, severe floods inundated 11 cities and over 7,200 villages in Gujarat, rendering about 176,000 people homeless.
In November-December 2015, northeast monsoon flooded parts of Tamil Nadu including Chennai, Andhra Pradesh, and Puducherry. Over 500 people were killed and 18 lakh people were displaced. The damages and losses from the 2015 floods are estimated to be over ₹20,000 crore.
Almost 60% of India’s landmass is prone to earthquakes of moderate to very high intensity, over 40 million hectares (12%) of its land is prone to floods and river erosion, and almost 5,700 kms of its 7,516 kms long coastline is prone to cyclones and tsunamis.
Burden on Individual and Government Finances
Disaster risks in India become complex because of growing vulnerabilities arising from unplanned urbanisation, development within high-risk zones, and several other factors. Natural disasters cause havoc on the finances of individuals given little awareness about home insurance. home insurance is hardly bought even in regions that have suffered heavy losses from natural disasters.
Larger industrial units are often protected by insurance but individual homes are not. Most of the burden of the losses from natural catastrophes falls on the central government and the state governments. A negligible portion of the losses are insured due to lower penetration of home insurance in disaster prone areas.
Need to Incentivise Home Insurance
The natural disasters have emphasised the need for home insurance at the individual level. Insurance continues to be and will continue to be a financial product that would be sold through sales efforts and government incentives. Home insurance is no different.
The government provides tax benefits on premiums paid for health insurance covers. Home insurance too needs a push from the government through tax exemptions on the premiums paid. The insurance industry hopes the government will concede to its demand for fiscal incentives for purchase of home insurance in the 2017-18 Union Budget.
Home insurance can transfer the risk of loss from disasters to insurance companies. The government’s gain would undoubtedly be greater than the revenue tax it would forego. The initial tax sacrifice would be trivial but the protection that it would provide to the individuals who opt for home insurance would be phenomenal. Encouraging home insurance is in the interest of the government and the vulnerable citizens.
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