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C. Shivkumar

BANGALORE, Jan. 28

WITH the reinsurance markets continuing to remain firm, the insurance cover costs of most corporates have escalated.

According to sources, premium costs have gone up despite the offer of

no-claim discounts during the last year. Normally, if claims are not made in the previous year, insurance companies pass on the benefit to insurees in the form of no-claim discounts.

But this year, despite the no-claim discounts, the actual insurance premium costs have been much higher than last year.

Sources said that Reliance Industries Ltd was one of the companies to be hit by the hardening international reinsurance markets. They said that RIL had to fork out Rs 130 crore for a mega risk policy in the current year, which was 65 per cent more than last year. RIL's lead insurer was the public sector New India Assurance Company Ltd (NIACL).

Earlier this month, NIACL, which is also the lead insurer for Tanir Bhavi Power Corporation, was unable to find a reinsurer and had to cancel the cover for the project. It had to revise its bid to Rs 5.5 crore in the subsequent round from Rs 2.5 crore earlier, they added. This year's final premium cost to Tanir Bhavi Power was Rs 5.5 crore.

Insurees will have to fork out higher premiums on more mega risk policies coming up for renewal during the year. The public sector National Thermal Power Company Ltd ( NTPC)'s policies come up renewal in April. Last year, it paid out Rs 100 cover for risk cover for all its thermal and gas power stations.

Sources said given the current market trend, NTPC may have to pay out a higher premium. Last year, the reinsurance markets were soft when it entered the market for mega risk cover, with premiums in the 0.33-0.35 per cent range of the sum insured. However, since September last year, reinsurance premiums have soared to about one per cent and have not yet begun softening.

Since such high premiums will tell on returns, some of the companies have trimmed the kinds of covers they are going in for, especially those which have a high reinsurance components. Last week, Jindal Thermal Power Company confined its cover to just standard industrial risks. It did not renew the cover against machinery breakdown loss of profit. As a result, it cut its premium costs to Rs 3.4 crore from Rs 4.5 crore last year.

Another method being adopted to trim cover costs was by switching to cover on market-value basis as against replacement-cost basis, where premiums are substantially higher. Market value implies that claims settlement is done on the basis of the depreciated value of the assets.

Sources said that with bottom lines becoming a concern, companies were likely to trim their risk cover when their policies come up for renewal. However, the decision to trim risk cover will have to be approved by project financiers, they added. This was because project creditors have a physical asset cover on some of the insured machinery and equipment.

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