Terror strike doubles business risks for India Inc news
01 December 2008

The terror-strikes at the Taj and Oberoi hotels have not just added to the perceived risks of businesses in India, it has also added to the cost of doing business in the country.

While the risks of terror for businesses have increased around the world, the risks seems higher in India, due mainly to a lack of a credible deterrent and its porus borders.

It is not just the two hotels, who have lost hundreds of crores in property and business, other related industries like tourism, travel, retail etc have all lost in the three days of mayhem.

The problem with terror insurance cover is that it never covers the whole losses. Terror cover by nature is limited to those risks arising from terrorist hits and not to damages caused by fighting terror or long-term risks to businesses.

The two hotels may not just be able to quantify the risks associated with the terror strikes on their establishments. They simply may not also be able to claim the hundreds of crores of rupees they really lost in property alone, not to say of business lost, even though thee is a Rs700 crore ceiling on terror insurance claims.

Any attempt to claim compensation for the damage to the two properties are likely to hit both regulatory and professional barriers.

This is not just limited to the two hotels alone, it may extend to their business associates, suppliers etc and the general business confidence itself may take a toll.

Most companies are not sure of how to account for terror losses and are unaware of the level of terror risks faced by their companies. Buying terror insurance covers for their properties and possible business disruptions may not be enough to compensate for their losses, for they have no clues as to how the death and devastation from a terror attack could impact their balance sheets.

While the risks will be larger for business that have greater physical interaction with customers, other businesses may also be affected to the extend of the interlinkages.

Insurance companies too aren't in a mood to push policy sales due mainly to the nature of the risk and the likely extend of terror insurance claims.

Currently, the claims against the terror cover sold by insurance companies are paid out of a terror pool created out of the commitments given by insurance companies to meet claims arising out of terrorism.

No brokerage commission is also paid out for providing terror cover, making it less attractive for agents.

The country's manufacturing sector has already contracted sharply in November and the fallout from the terror strike on the country's financial capital cold risk a deeper an economic slump.


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Terror strike doubles business risks for India Inc