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L.N. Revathy

Coimbatore , Jan. 2

GENERAL insurance companies seem to be swayed by mega policies . Recently, Oriental Insurance negotiated and clinched the deal for providing insurance cover to a private airliner indicating the trend. And Bajaj Allianz General Insurance is quite upbeat about the opportunities in the domestic energy sector.

The company is gearing up to cater the insurance needs of the energy segment. It has provided insurance cover for two giants in the petrochemical energy space with the support provided by its global re-insurers, a couple of hydroelectric and wind power projects and a gas-fired-combined cycle plant project among others.

`Growing regulatory pressures, continued global competition, increased business interruption exposures are some of the challenges faced by the energy sector,' says Mr Kamesh Goyal, Chief Executive Officer of Bajaj Allianz General Insurance Company Ltd.

Capturing the current insurance trends in the energy sector, Mr Goyal has, in the latest issue of the company's corporate newsletter, Newstrack, recalled insurers' preference for tariff-driven policies after the 9/11 events due to hardening of the re-insurance market and the current reversal in trend with companies opting for mega policies.

The Tariff Advisory Committee had in the year 2000, allowed insurance companies to obtain cover outside the tariff, albeit for mega policy, he said and explained that in such policies, the sum insured (in one location) should exceed Rs 10,000 crore or the probable maximum loss Rs 1,054 crore. (The premium rates were driven by re-insurers).

But there are some vital components to this issue, the foremost of which is the excess or deductibles clause. `This is the amount which the insured bears for all claims. Under tariff-driven policies, the deductibles are quite low. The international norm for a material damage deductible is Rs 4.5 crore and business interruption deductible is 30 days.

`If the deductibles are higher, the rate advantage can be more,' he said and reasoned that energy companies would be able to absorb the deductibles as they have fairly large balance sheets.

According to him, the second issue would be the `Event limit,' wherein the maximum liability for anyone event would be fixed and this would be limited to the sum insured.

`It is arrived by looking at the probable maximum loss of the risk,' he said and conceded that this would be insufficient in the case of natural calamity.

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