Financial Daily from THE HINDU group of publications
Monday, Apr 01, 2002
Industry & Economy
Money & Banking - General Insurance
Raichur thermal power station units 3, 4 -- ICICI-Lombard emerges lowest bidder for risk cover
BANGALORE, March 31
GENERAL Insurer ICICI-Lombard (I-Lomb) has emerged as the lowest bidder for providing risk cover to Units Three and Four of the Raichur thermal power station (RTPS).
This is ICICI-Lombard's first major bid for non-motor risk cover contracts since it came into operation early this year. The quotes made by I-Lomb are inclusive of the five per cent provided for terrorist risk cover. Terrorist risk cover, however, has a cap of Rs 200 crore. In this case some of the discounts factored by I-Lomb were still under scrutiny, sources said.
The second lowest bidder for the projects is Bajaj Allianz, followed by the public sector insurer, Oriental Insurance Company Ltd (OICL). Last year Units Three and Four were with the public sector insurance companies. Sources said that I-Lomb had quoted bids of Rs 78 lakh and Rs 93 lakh for a sum insured of about Rs 900 crore for both of them together. The units have a capacity of 210 MW each. The risk cover offered is on a reinstatement value basis. This implies that compensation would be payable on a replacement -cost basis.
Government undertakings have in the past opted for market value method, where compensation is made after netting for depreciation. Insurance tariffs for reinstatement valuation is higher in view of the high underlying risks for the insurers.
The insurance tariffs, despite being the lowest, are considerably higher than what was quoted last year. This is in view of the loading for claims and the higher reinsurance rates in the markets. Reinsurance rates are currently in the region of about 0.75 to one per cent of the sum insured. Last year reinsurance tariffs averaged just 0.4 per cent for India.
Currently, the only other major project where ICICI-Lombard has provided risk cover is for the Jindal Thermal Company Ltd, where it is a co-insurer along with three other private sector companies. The lead insurer for this project is OICL.
But private sector insurers have been pitching aggressively for project insurance covers, in view of the low claims ratios. Claims ratios in project insurance is under 50 per cent and in the case of power sector even lower.
However, last year the Karnataka Power Corporation Ltd (KPCL), which operates all the six stations of the RTPS had made large claims, on account of fires in the stations.
Units One and Two have already gone to Bajaj Allianz. Bids for units Five and Six are also due to begin shortly and this is also expected to be substantially higher than last year in view of the changes in risk evaluation by the insurance markets. However, these hikes in insurance tariffs cannot be fully passed on to the power tariffs. This is because existing power tariff guidelines by the Ministry of Power restrict the pass-through to just 2.5 per cent of the operation and maintenance costs.
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