With terror attack claims likely to wipe out over 70 per cent of the Rs 700-crore terror pool, insurers are expected to chip in with additional funds to replenish the corpus and raise the premium paid for terrorism insurance.
According to initial industry estimates, insurance companies will take a hit of over Rs 500 crore on account of the Mumbai terror attacks. Most of the claim will be settled using the terror pool, insurers said. These estimates may, however, be revised after full assessment of the damage is carried out.
A source in a company involved with the insurance of the Taj indicated that for the iconic property alone, the claim may be as high as Rs 500 crore, which will include a part of the terror cover related claims. Indian Hotels, however, is yet to evaluate the extent of the damage caused during the 60-hour battle with the terrorists.
The Rs 700-crore corpus has been created over the last six years with contributions from insurance companies. Indian insurance companies had joined hands to set up the pool after the 9/11 attacks on the US.
New India Assurance, the largest non-life insurer, and General Insurance Corporation of India, the designated Indian reinsurer, had 24.44 per cent and 24.42 per cent share, respectively, in the pool in 2006-07. The total claim settled from the pool was estimated at Rs 84 lakh in 2005-06 and Rs 1.31 crore in 2006-07.
As the terror risk perception came down, the contribution of insurers decreased from 0.70 per cent of their claim settlement capacity in 2002 to 0.22 per cent at present. With the corpus expected to be significantly depleted due to the latest terror attacks, insurers will decide on revising the premium towards the end of the current financial year, the head of a public sector insurance company said.
Based on the decision, insurers will seek Insurance Regulatory & Development Authority’s concurrence to raise the terror premium. A source at the Authority said that insurance companies are bound to push for a revision to maintain the comfort level.
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The other option for insurance companies is to seek global reinsurance, which is more expensive. At present, if the total hit due to terror related claims exceeds Rs 700 crore, which is the corpus of the pool, global reinsurance is available.
“The premium rate for terrorism insurance will increase in the international market also. So, it makes sense to increase the domestic premium rates,” said an executive at Iffco Tokio General Insurance.