Insurance industry shrugs off Sinha’s assurance

Sitanshu Swain

Mumbai, Sept 12: Union finance minister Yashwant Sinha’s assurance on the safety of the Indian economy from the fallout of the tragedy-struck US economy may not just be true for the domestic insurance industry.

Termed as the costliest man-made catastrophe in the history of the US, the terrorist attacks on the World Trade Center which has caused billions of dollars losses to the global insurers and re-insurers will directly hit domestic non-life insurance market for a long period, predict the insurers.

As an immediate impact the insurance cost of Indian Airlines (IA) and the Reliance group (under the mega-risk cover) whose renewals are due in a month or two is bound to go op substantially. IA (over $12 million) and Reliance (around 80 crore) had already played a higher amount during the last year renewal. "One can feel the larger impact next year as the renewals for the current year is already over," said insurers.

A top team of General Insurance Corporation (GIC) which is currently visiting Monte Carlo, a global re-insurance center is studying the implications of US devastation on the Indian market.

The news cann’t but be worse for the Indian insurance market which had a tough time in placing the re-insurance business in international market in recent times, lamented the insurers.

Indian non-life market’s dependence on the international insurance market at present is estimated at around 10-20 per cent.

Currently valued over Rs 10,000 crore of premium, Indian non-life market’s outgo on account of the re-insurance is pegged over Rs 2,000 crore.

However, all the mega risks cover including around 16 companies having assets of around Rs 20,000 crore to Rs 30,000 crore each gets almost 90-95 per cent reinsured in the international market. All the large domestic petro and power projects fall under this category.
"These category of business will really be hit hard after the US devastation," noted the insurers.

According to some analysts who are eagerly awaiting for an accurate assessment of the the phenomenal tragedy in terms of its impact and losses have said that the re-insurance cost of the corporates across the size will go up. Explaining the impact on the insurance market a top official of the GIC said that it will be difficult to place the Indian business in the international market as the re-insurance market is bound to face a capacity crunch.

"The huge claim out of the US tragedy will sap the capital of the international insurers and reinsurers some of which may fold up," said an offical at GIC.

Going by the demand-supply theory the surviving re-insurance amd insurance companies have to charge high amount of premium from the local insurers and reinsurers for accepting the risks. In turn the local reinsurance or insurance company has to pass on the burden to the customers.

However, the only silverline in the otherwise dark cloud is that the domestic official re-insurer GIC with its own substantial reserve can compete much better way for more inward business which effectively means more premiums for the organisation and more forex for the economy. Insurance industry fallout from the terrorist attacks on the World Trade Center in New York and Washington will be enormous and will continue for a long time, industry observers said.

The property insurance market already severally restricted, will now be in shambles. Airport and airline risk management will change overnight. So might risk management of some of the major US office/retail/residential centers. Analysts predict that the disaster will mean heavy losses for insurers and re-insurers.