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— V.V. Krishnan

Terrorism insurance should be made available as a standalone policy.

A. Murali Mukund

The recent Mumbai terror attacks have put the spotlight on terrorism and the need for insurance against such acts. Many companies are unaware of the level of terror risk faced by them. And, even after buying terror covers for their properties and possible business disruptions, companies do not clearly know how the personal and property claims from a terror attack could impact their balance sheets.

Terrorism insurance is mostly offered as a rider or add-on cover to the main policies by domestic insurers. Internationally, it is available even as a standalone policy.

After the September 11, 2001 attacks on the WTC twin towers in the US, the General Insurance Corporation of India started maintaining a pool for terrorism premium. Currently, the claims against the terror cover are paid out of this terrorism pool.

Terrorist attacks so far in India have resulted in loss of human life and damage to public and government property and damage to corporate property was minimal.

Hence, monetary claims have not been significant till now.

The damage caused to Indian Hotels’ Taj Palace and Oberoi’s Trident in Mumbai may turn out to be the first major terror-related claim in the country. After terrorism was made an ‘excluded’ risk post-9/11 by global insurers, there has not been any major terror insurance claim on Indian non-life insurers. Non-life insurance companies have received claims worth Rs 1.3 crore on account of terror acts this year so far, while it was around Rs 1 crore last year. The claims included personal accident cover — claims submitted by persons who had been injured in bomb attacks.

The largest terrorism-related claim in India so far was made by Coca-Cola, for a plant that was blown up by naxalites.

Most of the property insurance for companies in operation is done through fire policies and for new projects it is done through engineering policies. One has to make sure that they opt for terrorism extension.

The approximate rates for terrorism cover are 0.022 per cent for industries and 0.013 per cent for non-industries and 0.08 per cent for residences on the total value of the property. But, the maximum liability per location is Rs 750 crore irrespective of the total sum insured.

The deductibles are 0.5 per cent of sum insured for industrial risks subject to a minimum of Rs 1 lakh and 0.5 per cent of sum insured for non-industrial risks subject to a minimum of Rs 25,000.

The deductibles are pretty high in the event of a claim. For example, in an industry where the sum insured is Rs 100 crore, the deductible is Rs 50 lakh for each terrorism claim. For terrorism covers of more than Rs 750 crore with lower deductibles, one would have to go to the international market.

One has to look carefully to know whether terrorism cover is provided in personal accident insurance and health insurance. In most life insurance products, the basic sum assured is paid to survivors in case of death of the insured due to any reason other than suicide in the first year. Life insurers do not pay double-accident benefit if the death occurs due to act of terrorism or war, as it is one of the chief exclusions mentioned in the policy wordings. Major surgical benefit covers only stipulated surgeries and hence no benefit is payable if a policy holder undergoes surgeries arising out of an act of terrorism.

The loss of profits in operating companies and project policies can also be covered for terrorism related acts. So, one can insure their loss of profits arising out of interruption of business due to terrorist attacks.

It is also advisable to check whether your money in transit policies, All risks policies, House Holders policies, Shop keepers policies, Electronic equipment policies, Transit policies is covered against terrorism insurance.

Some insurers feel that the terror attacks could worsen the risk perception of India in the international reinsurance market. A spate of terror attacks, including the destruction of the Marriot Hotel in Islamabad, has pushed up rates for Pakistani risks in the international market.

Similarly, post-Mumbai attacks it is feared rates for India coverage may go up. The potential reinsurance losses to the London market will certainly lead terrorism underwriters to take a relook at their terrorism rates for India.

More Stories on : Insurance | Terrorism | General Insurance

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