Power plants are attracting the fancy of insurance companies on the back of the due diligence exercise undertaken by financial institutions on them. Another factor behind this trend is the rich parentage of the projects.
Insurance companies are keen to insure power projects both at the construction and operational stages as the projects are built by renowned companies such as Bechtel and Larsen & Toubro.
A private insurance official said: "The technology used in these plants is well-tested across the world."
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Further, insurance companies are reassured by the due diligence and viability study undertaken by financial institutions during the construction stage.
"Institutions look into the natural perils, possible risks. and since large promoters are involved, we are assured of the maintenance of these plants," said an official from a private insurance company.
Constrained by the limited share capital, most new insurers are underwriting less than 10 per cent in most power projects. Players such as Bajaj Allianz General Insurance Company and Reliance General Insurance Company, however, are among the front-runners.
Bajaj Allianz is in talks to take a 49 per cent share of risk in the PPN Power Project near Chennai, with United Insurance having taken the remaining 51 per cent. The premium stands at Rs 18 crore, with a maximum probable loss of Rs 1,500 crore.
Industry sources said that the sum assured for operational risk cover for the project is in the region of three to four times the maximum probable loss.
Bajaj Allianz, another new generation insurance company, has co-insured four power projects and is in talks to participate in some more.
Reliance General, which is focusing on the corporate sector, has booked a total premium income of around Rs 50 crore during the first three quarters of the current fiscal.
Participation in underwriting risks in the power sector has seen Reliance General book a premium income of Rs 18 crore. It has so far co-insured seven power projects in the country, including the power plants of BSES in Kochi and Mumbai, Karnataka Power Corporation, Calcutta State Electricity Board, Gujarat Industries Power Corporation, as well as other projects in Andhra Pradesh.
Reliance General has also participated in the country's first barged-based power plant -- the Rs 900 crore Tanvir Bawa -- as well as the south-based GMR's first power plant, Vasant Bridge.
Reliance General has participated in these power projects where its share of risk has been around 20-40 per cent. The balance has been co-insured with state-owned insurance companies.
"We see ourselves becoming powerful in the industry through insuring power plants," said Reliance officials. The company is targeting power plants as it sees them as good risks to underwrite.
Currently, Reliance General is concentrating on corporate business and has also underwritten part of the risks in various fertiliser plants including Nagarjuna Fertiliser and Gujarat Narmada Fertiliser Company.
It has yet to venture into the retail segment. Officials, however, added that it will shortly enter with auto risk and health insurance products.