General risk firms to miss calamity pool deadline

The proposed natural catastrophe pool for domestic general insurance players may not be in place in time to cushion these companies from the expected rise in reinsurance premiums in 2006-07.

The insurance companies will have to reinsure at least 20 per cent of their business with General Insurance Corporation and the remaining with overseas players to mitigate loss in the event of claims.

A natural catastrophe pool has been mooted on the lines of the terrorism pool. With such a fund, the insurance companies would not have to bear the hike in reinsurance premiums caused by natural calamities, like hurricanes Katrina and Rita.

The reinsurance premiums for the next financial year is usually done during January and February as the insurance companies have to submit their premiums to the Insurance Regulatory and Development Authority by March 31.

This year, floods lashed Mumbai, Chennai and Bangalore with claims from Mumbai being the highest, pegged at around Rs 2,300 crore.

According to C S Rao, chairman, Irda, the setting up of the catastrophe pool will depend on the insurance companies' keenness to come together.

It will not be regulator-driven he said. M Ramdoss, chairman, Oriental Insurance Corporation, said reinsurance premiums are expected to go up from 5 per cent to 20 per cent in 2006-07, solely on account of catastrophes faced by the country.

It was in such a situation that the insurance companies formed a terrorism pool, which took shape in 2001. The corpus of this fund has grown from Rs 300 crore to Rs 500 crore by February 2005.

Industry observers said it will take a few more months for the forming of the natural catastrophe pool. This is because it requires data pertaining to the risk factor contained in storm, tempest, earthquake and floods in different regions and also those details related to the claims arising from different segments.

Most of the insurance companies are expected to impart this information as it will help create a benchmark on premiums to be charged on various portfolios in a detariffed scenario.

Interestingly, the general insurers had drawn up plans to have an earthquake pool over a year ago. However, with the country facing more calamities, like the tsunami and floods in the metros, the industry has been forced to look for a more comprehensive natural calamity pool.

However, overseas reinsurance companies have told Indian risk players that the US hurricanes would not affect domestic insurance companies, unlike in the case of attack on World Trade Center, when the reinsurance premiums for domestic insurers had spiralled.