The World Bank on Wednesday warned that natural disasters pose a major threat to India's economic development, inflicting losses amounting to $13.8 billion during 1996-2001 and eroding two per cent of the country's GDP.

"Of India's 31 states, 22 are regarded as being particularly disaster prone. About 55 per cent of the country's land is vulnerable to earthquakes, eight per cent to cyclones and five per cent to floods," World Bank's senior insurance officer Eugene N Gurenko said, referring to the bank's executive summary on India.

The disasters erode two per cent of GDP and 12 per cent of government revenues, he said at a Federation of Indian Chamber of Commerce and Industry seminar on insurance in New Delhi on Wednesday.

Direct losses from natural disasters increased alarmingly to $13.8 billion during 1996-2001 from $13.4 billion in 1981-95 and $2.9 billion during 1965-80, according to the World Bank's estimates.

World Bank criticised the government for inadequate disaster management mechanism and proposed further liberalisation of the insurance market to enable public and private insurers to take care of such colossal risks.

"The constitution does not directly specify which level of government is responsible for managing disasters," the bank said, adding the Centre was financing catastrophe relief efforts through "margin money" allocated to the states from the successive Finance Commissions.

World Bank, however, lauded the Eleventh Finance Commission's recommendation for a greater role of insurers and creation of a National Centre for Calamity Management to provide advice to the government on the financing of calamity recovery efforts.

World Bank could assist the country by offering a catastrophe risk management model that could be effectively used to reduce fiscal and financial exposures to natural disasters, Gurenko said.

Referring to the private-public partnerships in developed nations in funding losses on account of natural disaster, he said the Indian insurance sector needed to be liberalized further by removing restrictions like cross-subsidisation of household and small businesses.

Fire premium, in particular, for small business and households should be liberalised from the current tariff regime, he said.

Moreover, the claims handling procedures should be streamlined in the event of natural disasters.

World Bank asked Insurance Regulatory Development Authority to direct insurers to gather detailed data on catastrophes and monitor the exposures on an annual basis.