Reinsurance means sharing the risk among more than one insurance company. It limits the losses by buying insurance deeds from other insurance firms during a disaster. However, that had not been done last year. When Colombo city was flooded in May last year, the Fund was able to obtain Rs. five billion to pay the compensation without any problem. The Disaster Management Ministry was given Rs. 3.9 billion to make the payments.
The Fund had been informed repeatedly by the re-insurance firm since January that the natural disaster re-insurance for this year was to expire on 31 March and asked to renew it. Previously, the premium was Rs. 500 million, but this time, the payment had been raised to Rs. 816 million on the basis the re-insurance firm had paid Rs. five billion for flood victims last year.
However, the government had been unable to renew the re-insurance coverage as a top government minister had been influencing the subject minister to award it to a Singaporean re-insurance firm. A family business of that minister too, has been re-insured by the same Singaporean firm. The Fund has lost an opportunity to secure Rs. 14 billion to compensate the affected. Therefore, a supplementary estimate will have to be submitted to parliament to make the payment, government sources say.