India: The Chennai Floods - The Insurance Impact

Last Updated: 4 January 2016
Article by Clyde & Co LLP

This update is authored by Clasis Law, Clyde & Co's associated firm in India

In the last month the Tamil Nadu and Andhra Pradesh regions of India have suffered devastating floods, with the Chennai metropolitan region particularly damaged. The rains first began in the region on 8 November and after two days of exceptionally heavy rainfall, Chennai was left flooded. By 17 November, 10,000 people had been evacuated and troops were called in soon after to lead the rescue mission.

The situation rapidly worsened when fresh rainfall began on 1 December, leading to the suspension of all flights from Chennai city airport. As the death toll continued to rise, various businesses were affected; The Hindu newspaper was not published for the first time since 1878, car manufacturers were forced to suspend operations and Chennai Petroleum closed its oil refinery. The floodwaters finally began to recede on 4 December, leaving more than 269 dead and more than 5,000 houses underwater, with many people trapped inside. The region is devastated, the economic impact is substantial and it will take some time for the full extent of the damage to be quantified.

The Chennai floods have also raised important questions about the impact of climate change, particularly for emerging and developing economies. These are amongst the significant issues government leaders attending the Paris Climate Change talks have had to consider.

The economic impact

The financial consequences of the floods are anticipated to total between GBP 840m and GBP 1.5bn, with some forecasts as high as GBP 3bn. The Chennai area is home to a number of automobile manufacturers and IT companies, many of whom were impacted by the floods and have incurred substantial losses.

For the automobile sector, manufacturers including BMW, Ford, Ashok Leyland, Hyundai and TVS Motor were forced to halt manufacturing. The combined production of cars in the region is around 4658 vehicles and engines per day.

IT firms were also forced to close their offices. Infosys, India's second-largest IT firm, closed its Chennai campus over fears for the safety of its employees.

Cement and oil refining companies were also impacted, and had to suspend operations for a time.

Many of the companies affected saw their share prices slump in the immediate aftermath of the floods.

Smaller and medium sized enterprises, including textiles and tourism have also been badly affected.

The aviation sector was also affected as the closure of the airport left hundreds of passengers stranded, and more than 35 flights were grounded.

The insurance position

As the flood waters recede, the cost of the disaster is beginning to be quantified. According to Aon Benfield's catastrophe modelling unit, just 10% of the forecast GBP 3bn economic loss is likely to be insured, and therefore the impact on reinsurance providers is anticipated to be minimal.

Insurance penetration in India is relatively low; the gulf between the anticipated financial cost of the disaster (GBP 3bn) and the potential insurance exposure (GBP 300m), highlights just how much of an issue the "protection gap" is for the Indian insurance market. Insurance penetration had been increasing in India since 2000, but has consistently declined over recent years. Swiss Re reported (in June 2015) that Indian insurance penetration was at a 10 year low. The insurance sector has not been able to keep pace with the growth in GDP; distribution channels are challenging, as are rising costs and delays in the progress of reform in the sector.


A significant proportion of the insured losses will arise in the motor sector. The Electronic Control Units in submerged cars are likely to become damaged as a result of the flood water and with high end cars, the cost of these ECUs can be very high. Catastrophe reinsurance cover should reduce the impact of these losses for some domestic insurers. Certain motor losses that relate to engine damage due to hydrostatic lock will not be covered for many insureds since they are excluded under the standard motor insurance terms (the standard terms are mandatory for Indian insurers), and ordinarily, policyholders do not obtain appropriate add-on covers to protect themselves from such consequential losses.


A large number of homes and commercial premises have been damaged. The extent of property losses will depend on insurance penetration. Indian government owned properties are not insured, and it is likely that only a very small number of the domestic homes that have been damaged or destroyed are protected by insurance cover. Chennai has an economic base anchored by the automobile, software services, medical tourism, hardware manufacturing and financial services. Other important industries include petrochemicals, textiles and apparels. Many property damage claims have been notified to insurers but an estimation of the quantum of losses is proving to be difficult at the moment.

Business Interruption:

Business interruption policies may also be triggered, with reports of production being halted by a number of automotive manufacturers and with the impact of the property damage on supply chains. However, in circumstances where production was voluntarily halted as a precautionary measure (as was seen being done frequently during the floods) loss of profit will not usually be picked up by the business interruption covers availed by the manufacturers albeit there are some specialist insurers who offer such cover.

As with the Thai floods of 2011, it is likely that the question of cover for the financial impact of "wide area" damage may come under scrutiny. For English law policies on the market standard wording, the Orient Express decision remains good law and would greatly limit the cover available by deducting from the general business interruption claim the losses that would have been suffered in any event due to the impact of the floods on the region and its economy. Cover then has to be found in extensions such as Loss of Attraction or Denial of Access which typically carry lower sub-limits.

The floods will once again highlight the potentially global impact of such events in causing losses to businesses located elsewhere in the world, but who are dependent for their IT, other services or parts supplies on the affected businesses in Chennai. Cover is frequently provided for such losses by the contingent business interruption extensions in the standard policy. However, the precise scope of cover varies and is dependent on the insurer's wording. Issues of policy construction frequently arise in these situations as to the definition of a supplier (where they are not named in the policy) and whether it applies only to "direct" contractual suppliers. Losses due to the interruption of incoming data supplies are frequently excluded but less clear would be the position where an insured business has outsourced its IT operations to a Chennai-based provider.

Cover under customers and suppliers extensions would typically only apply if the premises of the customer/supplier are damaged (or access denied). So, for insureds unable to obtain supplies from a supplier whose premises were unaffected but whose own inwards supplies were disrupted due to transport difficulties, there is unlikely to be cover unless a bespoke wording applies.


The closure of the airport and the cancellation of a number of flights may have caused some losses for airlines. Press reports do indicate that the Indian aviation industry's interests in the affected region have been severely hit, and according to sector experts, the industry is believed to be staring at a collective loss of more than USD 150m. Commercial operators are suffering losses due to flight cancellations and grounding of aircrafts, as well as business interruption losses which are generally not covered under hull insurance policies taken by commercial operators. Private jets have undoubtedly taken a massive hit with at least 6-7 of them either partially or completely damaged and will trigger hull insurance policies. There may also be hull losses for commercial operators but as of now information in this regard is bleak since many carriers will need to move the affected aircraft outside the country to specialized facilities where the magnitude of the damage to the aircraft can be adequately determined. There may also be damage to spare parts and operators' ground handling equipment such as push-up trucks and diesel generators.

Life and Personal Injury:

Current figures indicate that at least 386 people have lost their lives, and with many more suffering injuries. This includes 18 fatalities in the ICU of a hospital where a power surge caused oxygen equipment to fail. There will be claims triggered under life insurance, personal accidents and mediclaim policies.


Whilst the Aon Benfield report predicts that the implications of the Chennai floods are unlikely to be significant for the international reinsurance market, reinsurance programmes will be impacted and coverage issues could arise. In particular, facultative cover of the premises of manufacturers in the Chennai area will likely respond to the loss. Where flooding is the (re)insured peril questions will often arise about whether paid losses can be aggregated as one claim to the reinsurance. In light of the relatively short, sharp period of rainfall in early November, hours clauses in the relevant policies may bring clarity. However, the issue of aggregation is fact-specific and the fresh rainfall that began on 1 December and which led to further property and business interruption losses will likely introduce uncertainty as to how claims ought to be presented at the reinsurance level. The investigative role played by loss adjusters on the ground will therefore have a bearing for insurers, not just in relation to the adjustment of inwards claims, but also the viability of aggregated outwards claims.

What caused the flooding?

Indian experts believe that it is likely climate change played a large part in why the rains this year have been so bad, breaking a 100-year-old record with one day's rainfall covering a month's average. Indian leaders attending the COP Climate Change Conference in Paris have made it clear that they believe that climate change has been a contributing factor, with the Indian Prime Minister describing the Chennai floods as a "manmade disaster". Whilst it may be impossible to identify exactly what led to the floods, it is clear that there are a number of factors that have contributed to the severity of the floods which could have been eased with better infrastructure, contingency planning and responses.

For example, storm water drains are supposed to be planned on the basis of detailed topographical data of the site; however, planning officials say contractors are rarely briefed on this. A former CMDA planner said mandatory standards based on data on sea level and water flows are not followed, resulting in inefficient drainage systems. Creeks and culverts are blocked by excessive dumping of litter and household waste, and the administration's failure to ensure timely desilting.

Authorities were forced to release 30,000 cusecs of water from the reservoir. However, the river into which it was released is not very deep or wide, and its banks have been heavily encroached upon over the years, meaning the water did not flow as expected, causing it to flood its banks and submerge neighbourhoods on both sides.

Furthermore, Chennai suffers from widespread illegal construction, resulting in the disappearance of over 300 natural water bodies. This destruction of these natural water paths has undoubtedly contributed to the flooding crisis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions