New Delhi/ Kathmandu: The devasating earthquake not only flattened Nepal but razed to ground it's tourism infrastructure likely to bring to their knees the insurance companies which are braced for huge financial losses as the damage claims would follow once life returns to normal.
Nepal boasts eight of the ten highest mountains in the world, with spectacular scenery to match. The tourism sector, accounting for about 8% of its economy and employing more than a million people, or about 7% of the workforce, however looks gutted in the short-term, as high-end hikers and backpackers cancel vacations. The devastating 7.8 magnitude earthquakes of 25 April that hit the Himalayan nation count among the deadliest in recent history, and one of the costliest, for one of Asia’s poorest nations with unemployment over 40% and per capita GDP of just $1,000. The estimated losses could exceed the country’s $20 billion annual GDP, to say nothing of the many priceless monuments and artefacts that have been lost. As the quakes set Nepal's economy back by more than a decade, the damages are expected to cost Indian insurance companies dearly.
Nepal’s unique topography and scenic landscapes have long drawn visitors from far and wide. But it only receives around 600,000 visitors each year, which makes hospitality a key area of potential growth.
Yet most major hotels have now been shuttered for at least a fortnight while structural assessments are completed, and Kathmandu airport has been thronged by shell-shocked vacationers clamouring to escape the bedlam. Airplanes have been held on the tarmac for hours as the besieged terminal struggles to cope with the increased traffic alongside vital aid deliveries.
Travel agencies based in India report near 90% cancellation of bookings with traffic being diverted to other hill stations and even south-east Asian countries. The earthquake has forced people to rework plans for a Himalayan getaway with cancellations pouring in from all over, they say.
Nepal, considered an affordable and attractive destination for Indian tourists had recently seen an increase in visitors following the floods in Jammu and Kashmir.
According to Shiju Radhakrishnan, CEO of iTraveller.com, while some tourists have been diverted to Himachal Pradesh, Uttarakhand and Ladakh, many travellers are too jittery and have dropped hill stations in north India altogether, preferring Bali, Thailand, Malaysia or south Indian destinations like Munnar and Nilgiris.
Yatra.com president Sharat Dhall said, “This unfortunate calamity has led to tourists across the world cancelling their travel plans to Nepal. We have received calls to cancel almost 90% of close to 1,000 bookings to Nepal. Only people with families in Nepal have requested for bookings to the country.”
MakeMyTrip chief business officer (holidays) Ranjeet Oak said the immediate focus was to ensure that customers who had travelled there were safe. "We are in the process of contacting our customers in Kathmandu to confirm their safety. We are also reaching out to travellers who booked packages to Kathmandu to update them with real-time information on the ground situation. Most of the airlines are offering zero cancellation or re-scheduling charges for up to a week to and from Kathmandu. There were flight cancellations yesterday but all flights are flying on a delayed schedule due to the runway shutdown in Kathmandu,” he said.
Oak said holiday bookings for Nepal had witnessed a surge in the last 12 months with a year-on-year growth of 100%. “Nepal is one of the major destinations for Indians and is quite popular, especially among adventure travellers from Europe and the US. With an average budget of Rs 15,000 to Rs 25,000 per person, majority of travellers usually spend 3 to 5 nights. Keeping the on-ground situation in mind, we have voluntarily cancelled all departures to Nepal for the time being. In return, we are offering trips to Kashmir, Ladakh, Bhutan and Himachal to tourists whose travel plans have been affected by the quake,” he said.
Compounding matters, four of Nepal’s seven UNESCO World Heritage sites- such as the 100-foot Dharahara Tower in the capital, have been severely damaged. At least 18 climbers at the Everest Base Camp died during an avalanche, while the popular hiking hamlet of Langtang has likely been wiped out by a landslide, according to the New York Times.
Meanwhile, agriculture which is the mainstay of Nepal’s economy, providing a livelihood for more than 70% of the population and accounting for a little over one-third of GDP, appears to have escaped relatively unscathed.
India is far and away reported to be the biggest economic partner, of Nepal accounting for 53.7% of all exports, according to the CIA. India also ranks as the Nepal’s biggest importer at 50%, followed by China at 35%.
Given India’s role in the small Himalayan nation, whose population of about 27 million is believed to be among the poorest in the world, it is perhaps no surprise that Indian insurers are gearing up to fork out a substantial amount as claims in the aftermath of the earthquake.
India’s Public sector company- General Insurance Corporation of India (GIC Re), the only Indian reinsurer and also the largest in Nepal, is expecting around a $160 million (close to Rs 1,000 crore) hit from the damages caused by the earthquake.
Indian Express quotes GIC Re chairman A K Roy as saying, “$160 million is the maximum we should be paying in the worst scenario. We have done the business of reinsurance (insurance that is purchased by an insurance company) with 13 Nepalese non-life companies and account for about a quarter of the total insurance in the country. We are expecting claims from segments like power plant, housing, buildings and hotels. The claims may lead to higher reinsurance premium in the region.’’
Life Insurance Corporation (LIC), which is operating in Nepal through a joint venture, assured that it would settle all the claims. “I have sent an advisory note to LIC Nepal to follow the same method which LIC does in India in such circumstances,” LIC chairman SK Roy said. “LIC Nepal is expected to get a better idea of the claims in the next two weeks,” an official said.
The losses are expected to rise as other PSU insurers operating in Nepal, including National Insurance and Oriental Insurance, are also expected to settle claims. All non-life insurance policies sold by the Indian insurers in Nepal are reinsured with GIC Re. GIC Re has sent 10 surveyors to Nepal at the request of non-life insurers to help assess the damage. “A clearer picture will be available after a week. We expect some claims from Bihar and Uttar Pradesh on the life side. Motor insurance claims are also expected,” said an official.
Given Nepal’s limited economic development, the overall financial cost of the earthquake is estimated to be smaller than less deadly natural disasters in other places. Analysts say Nepal’s tragedy will follow a similar pattern to other earthquakes- 2010 in Haiti, 2005 in Kashmir, and 2004 in the Indian Ocean, that resulted in a massive loss of life but limited financial losses for the global economy, and specifically the insurance industry. Swiss Re, the global reinsurance company, recently noted that although there were a record number of natural catastrophes last year, the number of related fatalities was one of the lowest ever, at around 7,000. “Improvements in early warning systems and emergency preparedness meant fewer victims than otherwise may have been,” the reinsurer said.
But that is less true in some places. When disaster strikes one of the world’s poorest countries, the human costs remain depressingly high. --EJ
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