The Hindu Business Line : Post-Katrina, Indian insurers faced with high re-insurance premium

HURRICANE Katrina that had wreaked havoc in the US is beginning to have its effect far away. The Indian insurance market is beginning to feel the ripples with global reinsurance premium hardening.

Indian insurers are finding it hard to negotiate lower reinsurance rates in the global market with reinsurers who have faced heavy losses due to the hurricane.

The hardening of rates was evident to Indian insurers while negotiating the deal for the first major policy involving a heavy reinsurance component — that of Indian Airlines.

"Though the insurance premium for Indian Airlines is expected to be substantially lower than last year, we could have negotiated a better deal but for Hurricane Katrina. The reinsurance premium rates have gone up after the hurricane," a top insurance company official said.

The Indian Airlines insurance deal was worked out in London last week among senior airline officials, Indian insurance companies and global reinsurers. The four state-owned insurers — Oriental Insurance Co, New India Assurance Co, United Indian Insurance Co and National Insurance Co — will be underwriting the cover.

Last year too, Indian Airlines managed to wrangle a premium that was 18 per cent lower, working out to a Rs 107-crore premium (against Rs 130 crore paid in the previous year.) The reduction this year is expected to be slightly higher in percentage terms. The insurance cover of Indian Airlines comes up for renewal in October each year. Indian Airlines has a mixed fleet of 62 aircraft that includes Airbus A-300, Airbus A-320, Boeing-737 and Dornier aircraft.

Insurance officials said that the final premium amount is often lesser than the original quote made by the insurers, since hard bargaining with global reinsurance companies generally results in softening of reinsurance rates.

This gets reflected on the final premium payout to be made by the insured. They said that the exact premium amount would be known by September-end after negotiations are completed with reinsurers.

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