General Insurance Corporation is planning to raise the scope of the terrorism insurance cover, for a single incident at one location, to Rs 1,000 crore (Rs 10 billion) from Rs 750 crore (Rs 7.5 billion) currently.
At present, the Rs 1,300 crore (Rs 13 billion) terrorism risk insurance pool, managed by GIC, covers risk up to Rs 750 crore, while any claim beyond that is covered by international insurers.
Following the Mumbai terror attacks, Indian companies which operate refineries, petrochemical, fertiliser and large power plants will see the terror risk premium rates go up when their policies come up for renewal next year. This has prompted GIC to look at a higher coverage, said a source close to the development.
When asked, chairman and managing director Yogesh Lohiya said: "It is an option. There is no decision on the issue."
While the details are yet to be finalised, sources said, GIC is considering the option of providing higher coverage through the terror pool.
The move will need an approval from non-life insurers, the GIC board and Insurance Regulatory and Development Authority.
If the insurers are unwilling to go ahead with the move, GIC can provide the cover itself since it has the capacity to do so. But insurance company executives said that this could lead to a conflict of interest between GIC's role as a reinsurer and as a manager of the terror pool.
Neither the insurers, nor Irda, however, have any objections to the scope of the cover being widened.
"If you look at the risk in the market, the coverage is adequate at the momentÂ… An increase in the coverage of the pool is like adding sugar to honey," said ICICI Lombard managing director Sandeep Bakshi.
"We don't have a problem in raising the limits but it should be under the prescribed limits of Irda. If it takes up risk higher than what is laid down, it will have to seek support from global reinsurers," added an Irda official. Assistance from a global reinsurer will be subject to regulatory approval.
Indian general insurance companies agreed to set up the terror pool, with additional premium, following the experience post 9/11. Following the attacks in the United States in 2001, global reinsurance rates hardened resulting in a steep increase in insurance premium. In many cases, reinsurers also decided to limit the extent of claims that they paid and even withdrew covers fearing further outgo.
In addition, in the past, companies had to cough up higher premium whenever there was a terror attack in India.
Following the Mumbai attacks, however, companies are likely to get away unscathed, thanks largely to the terror pool. But with the corpus expected to be eroded by up to Rs 500 crore (Rs 5 billion), insurance companies are expected to increase the premium rates marginally from April. The higher premium will have to be borne by those insured.
"The limit continues at the present levels. No decision has been taken so far. However, we are expecting the premium rates on terrorism (covers) to increase by 30-35 per cent," said United India Insurance chairman and managing director G Srinivasan.
