Woken up to the magnitude of recent terror attacks in Mumbai and possible huge claims, some international reinsurers have started cancelling their stand-alone cover to India Inc.
?We have information that reinsurers have sent cancellation notice to a lot of stand-alone policies,?? said a senior GIC Re official. He, however, refused to name the companies that face a cancellation of their polices.
Stand-alone terrorism policies are not covered under the Terrorism Pool that the Insurance Regulatory & Development Authority (Irda) has set up. All the domestic general insurers have a share in the pool, managed by the country?s official reinsurer, GIC Re. Normally terrorism cover linked to the pool is an add-on cover to the property & fire policy, in which customers pay a small sum to get the additional cover. Any claim out of the Terrorism Pool has a cap of Rs 750 crore per location.
The stand-alone policies are, however, almost reinsured 100% in the international reinsurance markets and can provide cover for a larger amount than Terrorism Pool can do.
The Mumbai airport, which is now managed by GVK, for instance, has taken a stand-alone terror cover. But it is now facing pressure from reinsurers to renegotiate the cover. ?There was renegotiation between the company and reinsurers to continue the terror cover after the Mumbai attacks,?? said the GIC official.
A reason for reinsurers cancelling terrorism cover could be the pricing.
As India has never seen terror attacks of the Mumbai scale, the reinsurance might have been set accordingly, in terms of premiums and terms & conditions.
In fact, there were hardly any terror claims in India since the Terrorism Pool was set up six years ago and Irda had revised terror premiums downwards on a couple of occasions for India Inc.
?A lot of rethinking is happening among the reinsurers as far as pricing and other terms & conditions are concerned,?? said the GIC Re official.
Even the Terrorism Pool will have to increase its premiums and may be the basic corpus beyond Rs 1,300 crore now, since the devastating terror attacks in Mumbai damaged two luxury hotels.
GIC Re has already made the first installment of claim payments of Rs 25 crore to Taj Mahal Palace hotels. According to the latest estimate both Taj and Oberoi-Trident may have to be paid around Rs 500 crore from the Terrorism Pool to settle their claims, which also include their business losses.