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Insurers fight again for Air India contract

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Shilpy Sinha Mumbai

ICICI Lombard gives lowest offer but rival insists on probe.

Air India’s mega insurance cover of $9.1 billion (Rs 41,800 crore) has kicked off a spat between insurance companies once again. This time it is between ICICI Lombard and a consortium led by Iffco Tokio, with the latter complaining to AI that there was a huge gap between the price quoted by the insurer and the reinsurer.

In a communication to the chief vigilance officer of National Aviation Company India Ltd (Nacil), and its executive director, finance, Iffco Tokio has formally alleged collusion in bidding and that the reinsurer did not fulfil all tender requirements.

 

Last year, a public sector consortium led by The New India Assurance Company Ltd, had written to the CVO of AI that the Reliance General-led consortium which won the contract had not adhered to the contract norms. The airline had paid $24.3 million to Reliance General Insurance for a total sum assured of $8.59 billion.

AI had called ICICI Lombard, Iffco Tokio and New India, the technically qualified bidders, on September 16 to open the bid documents. “Both ICICI Lombard and the New India-led consortium had quotes from the same reinsurer, Chartis UK, for two lines of business. But while ICICI Lombard placed hull and war risk with them, New India failed to do that,” said an insurance company executive privy to the development.

Both ICICI Lombard and the New India consortium had a reinsurance quote from the same reinsurer, Chartis Insurance, but had different bids. Also, Chartis, the reinsurer, did not meet the tender qualification for hull and war risk.

“Air India has conveyed to us that they are examining the matter. They may postpone the tender or take an extension, as it going to expire on September 30,” the executive added.

AI spokesperson Jitendra Bhargava could not be reached for comment. The company had an option of extending the existing policy by three months but with a huge claim of $100 million, it will not be available.

Iffco Tokio’s managing director and chief executive officer, S Narayan, declined to comment. ICICI Lombard did not respond to phone calls or messages.

The sum assured by AI has increased to $9.1 billion in 2010-11 from $8.59 billion in 2009-10. ICICI Lombard has offered the most attractive deal, under which the airline will pay $29.95 million for 134 aircraft. Within the total sum assured, hull liability will be covered for $27 million, war insurance $1.39 million and war liability for $1.23 million. This is despite aviation insurance rates going up globally by 10-15 per cent.

Insurance company executives said the rates had firmed by 30 per cent in case of bad claim experiences. There was not much increase in the premium in quotes this year, even though Air India had a hull loss of $100 million in the Mangalore air crash. The premium rates as quoted by ICICI Lombard have increased by 20 per cent against the increase in fleet size of six per cent. AI had recorded growth in passengers as well.

Industry sources said though the reinsurance price was $33.7 million, ICICI Lombard had agreed to insure the aircraft for $27 million for the hull and liability cover. It had agreed to cover the entire risk for $29.95 million.

“Given the huge price differential, there is already news from international reinsurance markets that after a major loss in May of an estimated $100 million, the placement will be stressed and difficult,” said an insurance broker.

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First Published: Sep 20 2010 | 12:14 AM IST

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