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Thursday, Mar 07, 2002

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Iffco-Tokio to tap co-ops for growth

C. Shivkumar


IFFCO-TOKIO General Insurance Ltd (ITGIL) has targeted co-operative societies and co-operative banks for expanding its insurance business.

ITGIL is a joint venture between the country's largest co-operative, Indian Farmer's Fertiliser Co-operative (Iffco), and Tokio Marine and Fire Insurance Company.

The co-operatives would act as agencies for the insurance company and are expected to provide the infrastructure for expanding the joint venture's general insurance business in the rural sector.

There are at least 35,000 farmers' co-operative institutions attached to both Iffco and the Krishak Bharati Co-operative (Kribhco), both of which are equity holders in the general insurance company.

But the Managing Director of ITGIL, Mr Ajit Naraian, said the company was awaiting amendments to the statute. "Unless the Insurance Act is amended, we cannot use the co-operative network.''

The alliance with ITGIL is expected to benefit the co-operatives/co-operative banks, allowing them to earn agency commission as prescribed by the Insurance Regulatory and Development Authority (IRDA). The IRDA has recommended an agency commission of 17.5 per cent.

ITGIL hopes to take over the risk cover for small and medium enterprises in rural areas, many of which are currently uninsured or underinsured, through the co-operative network.

Iffco-Tokio Marine is the first insurance company to pitch for this opportunity, especially to expand its industrial risk business.

In the industrial risk business, loss ratios are low since claims have traditionally remained under 70 per cent. Consequently, underwriting in industrial risk business itself is highly profitable.

Iffco-Tokio Marine also proposes to leverage on the network of the District Central Cooperative Banks and the Regional Rural Banks for the purpose.

In the process, the insurance company proposes to take over all the business attached to these institutions, including sugar factories.

Currently, the bulk of the Iffco and Kribhco fertiliser plants are insured with Iffco-Tokio Marine, which is essentially captive business.

In addition, it also has a 30 per cent share in the risk of the Mallya-owned Mangalore Chemical and Fertilisers Ltd (MCFL). However, in fertiliser plants, risk cover would also have to be reinsured with international reinsurance companies such as Munich Re or Swiss Re, leading to a reduction in margins.

Accordingly, Iffco-Tokio Marine has now started looking for other areas like sugar plants owned by co-operative societies for future business growth. Sugar plants have become attractive to private sector players, in view of the low claims ratios and the consequent underwriting profits. ITGIL is also expected to begin pitching for providing risk cover to the co-operatives themselves for storage facilities being offered to farmers produce. But Mr Narain said in these kinds of business, only fire risk cover would be offered.

Fire risk would include floods also. Some of the farm goods, especially cash crops, are already provided such risk cover by the public sector insurance companies at low premiums.

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