The Hindu Business Line : Mumbai floods: Insurers getting carried away?

THERE seems to be some degree of exaggeration in reports that claims on motor vehicles following the Mumbai flooding are likely to be so large as to require the infusion of fresh capital by the private non-life insurer Bajaj Allianz.

The facts on the ground seem to indicate otherwise.

Private non-life insurers entered the market only recently and, as such, their liabilities will be restricted to cars sold in the last couple of years.

The total number of passenger cars sold in 2004-05 was worth Rs 19,000 crore.

Now, double the amount to take on board vehicles sold the previous year.

Of this total amount, say a fifth represents cars sold in Mumbai, of which a tenth will put in claims on account of the flood, each claim accounting for a fifth of the value of the car.

This puts the total claim liability, for all non-life insurers together, at about Rs 150 crore, at most.

Assuming that Bajaj-Allianz was able to capture a quarter of the motor vehicle insurance business, by attractive commissions on `first premium' payments to dealers (in life insurance these run as high as 25 per cent), the company's total liability will be around Rs 37.5 crore.

The profit booked by Bajaj Allianz on Miscellaneous Insurance (largely comprising motor vehicle insurance) in 2003-04 was Rs 3 crore (against a loss of Rs 85 crore for private non-life insurers, as a group).

So, if claims of the above order do materialise, they will indeed be sufficient to offset many years worth of profits.

Definitely not a good sign.

On the other hand, the company's share capital as on March 31, 2004 stood at almost Rs 110 crore, with another Rs 21.70 crore (net profits for the year) having been carried over to Reserves.

So the very worst that can happen is that the company will have to bring in additional capital to leverage its expansion plans.

Any wipe-out of capital on account of this one disaster is simply not a realistic scenario.

Commercial vehicles have been left out of this reckoning because most of them are out on the highways at any given time, and because their bodies are higher off the ground than is the case with cars.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Gilt-edged trading

Construction of law: Is there a disconnect?

Worries over rising crude price

Hey, what's the taxman doing with the measuring tape?

A search for the roots

Future imperfect

Rough ride on the FBT road

Severance of the umbilical chord

Mumbai floods: Insurers getting carried away?

Does globalisation remind you of Indian cricket or a butterfly flapping its wings?

Cartoon