GLOBAL MARKET TURNS TOUGH; 15 OTHER MEGACORPS ALSO ON THE HUNT

Non-life majors chip in to provide partial terror cover to Reliance

Sitanshu Swain

Mumbai, Dec 10: For the first time, the state-owned non-life insurance companies — New India Assurance (NIA), United India, Oriental Insurance and National Insurance — have proposed to provide a partial terrorism cover to over Rs 50,000 crore worth of assets of the Reliance group to meet the exigencies of a tough and difficult international re-insurance market, following the September 11 terror attacks in the US.

The state-owned insurers will also have to chip in similarly for other “mega risk” corporates. Reliance apart, some 14 to 15 big companies, with the majority from energy sector, will currently access the international market to hunt for insurance cover.

The need for domestic non-life insurers to chip in for Reliance and the other mega corporates arose due to the scarcity of terrorism cover available in the international market.

For the past two years, ever since the Reliance group had opted for a packaged policy under the ‘mega risk’ category, almost 90-95 per cent of the risks of the group were covered by the international market. With Munich Re as the leading reinsurer, the group had shelled out a higher premium of Rs 80-Rs 90 crore for the current cover it enjoys, which is to be renewed during the last week of December.

Confirming the development, KN Bhandari, chairman and managing director, NIA, who was in London last week to negotiate the forthcoming deals, including that of the Reliance group, noted that there is an utter absence of supply and capacity of risk covers and more so of terrorism cover in the international market after the September 11 tragedy. Hence, the domestic insurers have to now stretch themselves to provide the facilities possible for the local companies. “The full range of terrorism cover is not available in the international market and whatever is available is commanding skyrocketing premium,” New India chairman said.

Considering the jittery reinsurance market, the premium and deductibles for domestic companies, which need heavy reinsurance have to be worked out afresh.

“We are working on a plan to provide partial cover on terrorism and the modus operandi is expected to be ready by next week,” he said.

However, the ability of the local companies in terms of funds at their disposal will be to the extent of Rs 300 crore, a reserve the domestic insurance companies had to create out of the extra premium of 10 per cent loaded in the existing policies.

The state-owned Indian Airlines had paid almost Rs 75 crore extra to renew its policy recently. The airline had to pay almost Rs 50 crore exclusively for getting the terrorism cover of only $50 million from the international market.

Energy major ONGC, which had renewed its policy before September 11, had to cough up over Rs 20 crore extra to retain the terrorism cover.

Since 1999, Reliance through NIA, has been availing of the mega risk policy, which is a ‘comprehensive package policy’ for its petrochemical plants and related onshore and offshore properties situated at Jamnagar, Hazira and Patalganga.

NIA had approached the Tariff Advisory Committee with such a proposal, saying that the petrochemical plants with integrated offshore risks could not be covered in the usual way under the existing tariff regulations.