State-owned general insurance companies have initiated talks with petroleum majors Oil and Natural Gas Corporation, Reliance Group, Bharat Petroleum and Hindustan Petroleum to offer stake in the proposed joint venture for oil and energy insurance.
Senior executives with public sector insurance companies said the first round of parleys with the four companies were held last week. The insurers are slated to meet Indian Oil Corporation, Petronet and some hydropower generation companies over the next couple of weeks to rope them in as partners.
They also said that the insurers are looking at offering about 50 per cent stake to oil and energy majors and reinsurance companies in the special purpose vehicle (SPV) to float the insurance venture. Sources, however, added that the exact quantum to be held by the oil and energy companies would be decided after a few more rounds of talks. "In-principle, the companies have agreed but the details are being worked out," said a senior executive with a general insurance company.
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He also said that the exact shape of the joint venture would be worked out once the partners are finalised. "We are debating whether the company will be totally mutual, partly mutual or a captive entity," said the executive.
The decision to set up a joint venture exclusively handling oil and energy insurance was taken after the September 11 terrorist attacks in the US led to a dearth of risk covers for the sector and premiums zoomed upwards. Reliance, for instance, had to shell out an additional 60 per cent to get an insurance cover. Even though the premium worked out to nearly Rs 125 crore, the group could not get a mega risk cover and had to settle for a separate cover for each of its insured plants.
The system where the insured is a stakeholder in the joint venture has been running successfully in the US where the major oil companies have come together to form an insurance joint venture. "In India, we are trying a little variation with the insurance companies also joining in, which is not the case in the US. But we would be able to protect the insured companies from the volatility in the international markets due to incidents like September 11," an executive said.