The Hindu Business Line : Liability insurance providers claim drop in premium

THE premium on liability insurance for the IT and ITES sector has dropped over 30 per cent in the last one year, according to providers of this special cover.

This is despite a 50 per cent growth in liability business, which is now estimated at Rs 300 crore, as against Rs 200 crore a year ago.

Professional indemnity insurance accounts for just 2-3 per cent of the total insurance market.

Mr Shivaprasad Krishnan, Head, Liability Business, ICICI Lombard, said, "We have witnessed reduction in premium of over 30 per cent for Directors and Officers liability insurance and Professional indemnity insurance for technology organisations.

This drop has been witnessed over the last four quarters on certain other products like product liability."

ICICI Lombard has a market share of 35-40 per cent in liability insurance for technology organisations.

Since liability insurance handles a large sum assured, 85 per cent of the risk is reinsured.

The international reinsurance rates have been soft since there have been no major losses after 9/11.

"Internationally, the reinsurance market has been stable on account of no major losses in the recent past," said Mr R. Raghavan, Manager, New India Assurance.

However, one of the major reasons cited by others for the drop in premium is that the Indian companies are quoting lower rates in the face of the growing competition.

This means that the average premium, which is arrived at by adding the rate of the domestic company and the international reinsurer has dropped, said an insurance company official.

Officials across the insurance industry agree that Indian companies do in certain cases quote a lower price than what the reinsurer charges.

In such instances it would be either on account of the entire risk being kept on the books of the local insurer (i.e., without reinsurance) or on account of charging such differential pricing on that portion of the risk that the local insurer decided to retain in his books.

"In the case of differential pricing, one would notice that while the reinsurer's pricing for 100 per cent of the risk is X, the customer price could be lower than X on account of such weighted average pricing," says a senior official at a private insurance company.

Mr V. Ramakrishna, Managing Director, India Insure Risk Management Services said, "The premiums have dropped by about 30-40 per cent in the area of liability insurance.

"For IT companies that have good corporate governance record, the premiums are lower in terms of liability insurance since they are decided on a case to case basis."

There is, however a note of caution with the recent cases of the alleged sale of British customers' data and the siphoning off of funds of Citibank clients from BPOs in India.

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