Insurance renewal of AI concludes at much higher price

Written by fe Bureau | Mumbai | Updated: Oct 1 2009, 04:58am hrs
The controversial insurance renewal for national carrier Nacil, for 2009-10, has been concluded at a much higher price than the contracted bid between the company and the consortium of insurers, led by Reliance General Insurance. After a change of the pricing, the deal has been put through by Reliance General and Mitsui Sumitomo before the existing cover expires on Wednesday. It is not yet known whether Air India has agreed to the higher pricing.

Though Reliance General was officially awarded Air Indias deal on September 9, it has taken time to place the deal, since the London markethome to the international aviation insurance markethas resisted the reinsurance terms and conditions of the deal, prepared by the Mitsui Sumitomo.

London market sources pointed out that Air India has to pay $3-5 million more to conclude the deal, since the reinsurers in London have refused to accept $22.2 million, the price at which Reliance General consortium was awarded the deal over its public sector counterparts, led by New India Assurance. Nacils $6.2 billion worth of risks include the value of the aircraft and other liabilities.

However, without giving any details, including the exact amount paid to conclude the final deal, sources from one of the parties involved in the deal said the deal has already been placed and the necessary cheques have been deposited. Delhi-based ACE and Marsh India have acted as brokers for Nacils renewal exercise.

Reliance General and Mitsui Sumitomo had agreed to pay the higher amount for the renewal with the plea that Air India had incurred a claim of $18 to $20 million, out of a mishap in one if its West Asia-bound aircraft, just before it received the official award letter from Nacil.

Industry sources have disputed the way changes have been made with the premium which was agreed between Reliance General and NACIL on September 9. As the fire mishap had happened on September 4, the private sector consortium, led by Reliance General had couple of the options while accepting the deal. The consortium could have asked for the details for the loss, or submitted a revised premium estimate after making an assessment of the losses to Air India out of the engine fire. It could have also categorically stated that they would not be able to hold their price in view of a loss. The bidders for the Air India deal, including public sector consortium led by New India, could have been given a chance to place the deal at a cheaper cost.

There were ways to reduce the premium cost, but the way the entire deal has been handled right from the stage of awarding to the placement doesnt conform to the normal norms transparency and fairness, said industry sources. It is not yet known who would bear the cost of the extra premium which has been charged over the contracted amount between Nacil and the insurers.