India not to be affected by global insurance losses

Insurance costs will not rise, and India will not face any impact on account of the high magnitude of insurance losses across the globe due to natural calamities.

This is because unlike other international markets, Indian buyers of insurance are insulated from global impacts on account of a tariff regime.

With the tariff regime, the cost of 70 per cent of all insurance risks are controlled by the regulator, including that of property.

Confirming that insurance losses brought about by hurricane Katrina will not have any impact on the cost of insurance in India, R Beri, chairman and managing director, the New India Assurance Company, added: "There is adequate global capacity, amounting to two and a half times the demand for property risk."

New India itself, has capacity to the tune of 4.5 times the requirement. While the economic damage afflicted by hurricane Katrina crossed $100 billion, insurance losses were estimated at $60 billion, according to a report by US-based Risk Management Solutions Inc.

The Mumbai and Gujarat floods are not expected to have any impact on the balance sheet of Indian insurers as they are protected by reinsurance cover. "95 per cent of our risks are reinsured under the catastrophic insurance cover, and only 5 per cent will impact our balance sheet," said Beri.

Private insurance companies are not as optimistic, as many feel that cost of reinsurance coverage will rise when it comes to renewal next calendar year.

Beri however, told Business Standard that reinsurers gauge the risk loss over a period of 3 to 5 years, but the catastrophic risk cover is reviewed over a period of 10 years and there have not been major insurance losses in the past.

At the same time, Beri did not totally rule out cost of reinsurance rising as much depends on further calamities that could affect the insurance industry.

Risky Facts

• Hurricane Katrina caused $60 bn in damages.
• Mumbai floods the highest natural calamity ever borne by Indian insurers.
• No impact on insurance cost for common man as India continues to adopt tariff regime.
• If cost of reinsurance cover rises based on reduced global risk capacity, insurers will have to take cost on their books.