The Hindu Business Line : United India bags IOC’s mega policy

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IOC’s asset cover risk is estimated at about Rs 60,000 crore
For business interruption, the risk cover is for Rs 17,000 crore
The terrorism cover is for Rs 74,000 crore

C. Shivkumar

Bangalore, Oct. 1 Public sector United India Insurance Company Ltd (UIIL) bagged the prestigious Indian Oil Corporation mega risk cover at a premium of Rs 36 crore.

Sources said the cover comprised three components – asset cover, business interruption and terrorism risk. Risk covers above Rs 10,000 crore are treated as mega policies, under current guidelines of the Insurance Regulatory and Development Authority.

IOC’s asset cover risk was estimated at about Rs 60,000 crore. The asset risk cover included all IOC’s refineries, pipelines and handling terminals at the major ports in the country.

For business interruption or revenue losses in the event of accidents, the risk cover was for Rs 17,000 crore. The terrorism cover that included third party liabilities as well was for Rs 74,000 crore, the sources added. The policy comes into effect from the beginning of October.

Coinsurance pacts

UIIL, the sources said, would also share the risk, through coinsurance arrangements with the remaining three PSU insurers. This form of insurance syndication is normally done as a derisking mechanism, they said.

However, they added unlike last year, private sector insurers were unlikely to be included in the syndication. The derisking also involved placing part of the risk with global reinsurers.

The sources said the IOC risk cover was hotly contested between all the public and private sector companies, in view of the size of the deal. Besides, they said, during the last few years, IOC seldom made any major claims.

The low claims ratio accordingly implied that IOC was a sought-after account among all the insurers. This brought down the premium rates down. IOC though was able to beat down premium only by 10 per cent over the corresponding period of last year. This was despite domestic premiums crashing by over 70 per cent post-deregulation. Last year, the premium was Rs 42 crore.

Reinsurance driven

IOC’s inability to capitalise on the fall in premiums was largely, because mega cover tariffs are largely reinsurance- driven, the sources said.

Reinsurance markets have in fact hardened during the last few months, with the turbulence in the financial markets. The reinsurance arrangements were mostly through the Facultative route (Fac Re is an arrangement where ceding insurers offers individual risks to a reinsurer, who has the right to accept or reject each risk.). UIIL had tied up the reinsurance even before the quote was made. The only problem in this bid was that unlike the past, UIIL was not likely to earn large ceding commissions.

However, they said that there was little necessity for obligatory cession to the national reinsurer, General Insurance Corporation. Normally, under current guidelines, at least 10 per cent would have to be mandatorily ceded to GIC. In mega policies, this ceding was not necessary.

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