Indian public sector insurance companies in the footsteps of their foreign counterparts, have approached the central government for a bailout as global reinsurance capacity pertaining to aviation in particular has reduced dramatically.
The four public sector insurers are meeting in New Delhi on Monday to take stock on further action required in other sectors including insurance of mega risks, refineries, etc. This follows global reinsurance companies withdrawing their support in the area of terrorist cover.
Heads of public sector insurers have not ruled out asking the central government for further financial support. New India Assurance Company Ltd chairman-cum-managing director K N Bhandari said: "While we continue to support the Indian market, we need to discuss and come to a consensus as to what more needs to be done in the wake of the global crises".
More From This Section
Insurers are likely to approach the government to become the insurer of last resort, much like the Reserve Bank of India is the lender of last resort. This follows the global trend whereby foreign insurers despite having publicly stated that they have adequate capital on hand to meet claims following the September 11 US disaster, have already gone with a begging bowl to their respective governments.
S K Purkayastha, additional secretary in the financial markets division of the finance ministry is also slated to meet civil aviation ministry officials, general insurance companies and Insurance Regulatory and Development Authority chairman N Rangachary to discuss the impact on the aviation sector.
A decision on whether the government would extend a comfort letter to private airlines _ Air Sahara and Jet Airways _ in case of third party liability crossing the $ 50 million mark in a single incident would also be discussed.
Finance ministry officials when contacted said that the meeting would be exploratory in nature and would look at the impact on the insurers following the developments in the aviation business.
Host of airlines around the world and even in India have sought government support since the attacks to help meet higher insurance costs and fall in third-party liability cover. Bhandari said: "We have requested the government to step in to provide a level of comfort should third-party liability for airlines exceed the $ 50 million capacity". The government has reportedly cleared the issue to cover third party risks. In the case of Air India, it is to the extent of $ 1.5 billion and $ 500 million for Indian Airlines.
Before the attack, the commercial aviation insurance market covered the hijacking and terrorism risk_known as war and allied perils_up to an airline's or airport's full liability insurance limits. Within a week after the attack, insurers canceled the coverage and offered to provide $ 50 million of limits to airlines.