A question mark hangs over the corporate sector on getting
terrorist risk cover from April 2002 onwards. Currently the
terrorist risk is covered as a standard peril in fire insurance
policies in India.
Following the 9/11
incidents in America and the subsequent attack on Indian
parliament, overseas reinsurers are refusing reinsurance of
domestic general insurers fire insurance portfolio. Despite
such a stance taken by foreign reinsurers, public and private
sector general insurers are now covering the terrorist risk after
charging a 10-per cent extra on their fire premium rates.
Only recently did the fire insurance rates were revised downwards
due to a very favourable claims experience. But insurers cannot
survive without reinsurance for long, as it is inviting trouble.
In fact, in case of major industrial risks, the primary fire
insurance policy is driven by reinsurance arrangements.
According to an industry
official, all general insurers are discussing the modalities of
covering the terrorist risk. "Whether the terrorist cover
will be covered only for normal- and medium-sized risks or even
for mega industrial risks, should there be a cap on the amount of
claim payable due to terrorist damage or should there be a
compulsory excess (the minimum loss amount that a policyholder has
to forgo in case of a claim) are some of the questions to be
insurers-tariff advisory committee (TAC) meeting ended without
taking any decision on the issues. "We will decide before
March 2002 so that the policies that come up for renewal in April
2002 are not affected," says a high-ranking government
The other issue that is
dogging the industry is the creation of a catastrophe reserve. The
centre plans to create the reserve fund with a corpus of around Rs
320 crore out of the contributions from general insurers. The
contribution rate is pegged at around 3.5 per cent of their total
Here again several issues
are to be considered, like the amount of contribution from each
insurer and their eligibility to draw from the fund upon the
happening of a catastrophic event. If the contribution to the fund
is to be made on the basis of the premium income than the claim
from the fund by the insurers logically have to be considered on
their contribution ratio.
But this arrangement will give the government insurers huge
leverage in marketing, as they can claim that they are in a better
financial position to settle huge claims.
On the other hand, if
insurers are allowed to draw on the basis of a loss amount, then
it will be like big insurers subsidising the losses of smaller
companies. The other questions to be answered are whether the
contribution to the catastrophe reserve will be considered while
determining the insurers solvency margin and whether the
contribution will be eligible for tax breaks.