The Hindu Business Line : Insurers to settle only claims with add-on quake cover

ONLY those corporates that have both earthquake and STFI (storm, tempest, flood and inundation) covers will be entitled to receive compensation for the damages caused by the recent tsunami strike, say sources in the insurance industry.

STFI is an add-on cover in the standard fire insurance policy, and insurers had the option of keeping out these covers and thereby restrict the premium costs.

The Bajaj Allianz General Insurance Company Ltd Chief Executive Officer, Mr Kamesh Goyal, said, "Any loss due to the present tsunami which is said to have occurred as an after-effect of the earthquake would be covered under fire policy only if earthquake extension has been given to the fire policy."

The sources said several corporates and power plants located in the southern coastal region had excluded earthquakes from their insurance policies to contain premium costs. This would mean that these corporates were likely to face difficulties in realising claims from the insurers. Similarly those that had taken only earthquake but excluded STFI would still not be entitled for any claims settlements, the sources added.

Only a few of these entities have taken the complete covers as mandated by the guidelines of the Tariff Advisory Committee. Power plants had restricted the costs in view of the tariff guidelines. At present, under the guidelines of the Ministry of Power, the pass-through impact of insurance is capped at 2.5 per cent of the operation and maintenance costs. Accordingly, power stations have restricted the scope of the insurance cover in a bid to ensure that the project tariffs remain competitive.

As a result, the sources said that wherever state-owned and public sector plants have incurred damages, the costs would have to be absorbed by the respective promoters or underwritten by the respective budget, with a concomitant fiscal impact.

The sources said that even where both covers were taken, only a few have done it on the basis of reinstatement costs. Reinstatement costs implied that the claims would be settled on the basis of the replacement cost value of the assets. Most of the corporates, especially state-owned entities that have taken both categories of covers, have done so on a market-value basis. This would mean that the insurance compensation would be done only on the basis of the depreciated value of the asset.

However, for vehicle claims settlements, such problems are unlikely. For all automobiles covered under the comprehensive policy, settlement is unlikely to pose any major problem. This was because the policy coverage included both STFI and earthquake, including some covers for personal accident.

Only in third party policies, insurers are not expected to face any claims settlements. Most commercial vehicle operators with vehicles more than five years old have taken only third party covers.

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