Global risk pooling hits local shores

Competitive pressure to bag corporate business is seeing new waves in the insurance industry. Pooling of global risks of multinational companies (MNCs) has taken off in India with OM Kotak Mahindra Life Insurance Company being the first to tie up with the Belgium-based Swiss Life International.

Group insurance business has become highly competitive as insurance companies quote very low premium rates in order to bag business.

"Tying up with Swiss Life helps OM Kotak since the international entity has a number of MNC clients under its fold. This makes it easier when we approach the 300-off MNC clients operating in India, which are affiliated to Swiss Life," said OM Kotak CEO Shivaji Dam.

OM Kotak expects to bag five to 10 accounts every year and retain them in its books in the following year, while at the same time bagging new ones, added Dam. "In exchange we will pay Swiss Life a referral fee," he said.

Globally the practice is to go in for profit-sharing. However, as the Indian laws do not allow for the same today, OM Kotak will initially try to bag the corporate business on a standalone basis. "Later there will be pooling of lives once regulations permit," added Dam.

The Swiss Life Network consists of a worldwide partnership of insurance companies working together to conclude group insurance contracts for MNCs.

The network has about 50-odd partners and is active in over 40 countries, where it opts for an exclusive alliance. This means that Swiss Life ties up with only one insurance company in each country.

The insurance company in turn is not permitted to tie up with any other global insurance player for the pooling of group risks. OM Kotak, in other words, cannot tie up with any other global insurer and nor can Swiss Life tie up with any other domestic player.

There are quite a few similar network of insurance companies across the globe with International Group Program (IGP) being the largest followed by Swiss Life International. The American International Group (AIG) is also one of the smaller players in the pooling of global risks.

This concept of pooling of global risks of an individual corporate started in the 1960s.

Only well-known independent life insurance companies in individual countries "" where MNCs have subsidiaries or affiliates "" can become members of the network. MNCs benefit as this arrangement mirrors their own network of worldwide branches, and helps reduce premium costs.