Indian conglomerates with huge property including factories and manufacturing bases are likely to be adversely hit by rising property reinsurance rates. Tariffs in this segment have hit the roof and risen 500 per cent in certain markets in the international arena as a result of the September 11 attacks.
Reinsurance sector analysts said that companies with mega risk having facultative insurance for their properties would have a hard time negotiating their rates through their insurance firms.
Facultative insurance was not decided on a pre agreed arrangement but could be invoked any time of the year. Companies that needed to renew their papers would have a trying time settling a suitable deal in cost terms.
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Although the annual contracts have not yet assumed much importance, corporates were likely to hit the most next April, when most policies would come up for renewal. It was likely that the insurance companies would pass down majority of the hike in rates to corporates.
The changes were part of a global process in the sector. Terrorism cover till last year was easily available. The situation has changed drastically in the aftermath of the attacks and rates have started varying even within the country. For example it has become very difficult for companies in and around Bangalore to strike a favourable reinsurance deal, if at all one gets it.
Most of the larger reinsurance contracts have clauses in them allowing the reinsurer to renegotiate the deal in case there is a drastic change in the scenario. With property risk on the rise, capacity for property reinsurance have shrunk and hence spiralling prices, explained sources.
Terrorism and property insurance for next year were likely to be of immense importance and the issue was being considered by the Insurance Regulatory and Development Authority. Industry sources said that such insurance would in all likelihood be separated from other forms of risk, and there could be a hike in tariff for such insurance even for the fixed annual ones.
There were three types of reinsurance deals. Corporates could go in for annual contracts done at the beginning of the fiscal and at a predetermined rate. The options was to sign on non-proportional contract, which involved transferring certain fixed amount of risk by the insurance. The third type was facultative insurance that was generally done by large corporate with mega risk and could be reworked any time of the year.