Floods may not impact fire risk premiums

The estimated Rs 2,000 crore loss to insurers on account of the floods that ravaged Mumbai last week will not affect the premiums of fire insurance as they are under the tariff regime.

Further, given the current situation where many households, shops, corporate establishments have been affected by the floods, insurers have the right to deny the cover.

This is called the 'apprehension period' when insurance companies see innumerable people rushing to buy cover after seeing their neighbour's properties flooded and feel that they too are in an imminent danger of the same.

"Insurers will be cautious about writing those risks," said senior New India Assurance official.

Nevertheless, the flood cover will continue to be part of the basic fire insurance policy taken by commercial establishments and households.

Today, the standard fire and perils policy allows for commercial units to opt out of the flood cover, whereby the cost of buying a risk cover would come down marginally.

Many commercial establishments in Thane had opted not to take flood cover, not expecting any floods to take care. This means that their claims will not be paid.

Floods as a peril are covered by default under the fire policy. Only if the insured requests not to be covered, would the flood cover be excluded.

This is likewise in the case of earthquake cover. An insured can exercise the option on buying the cover or on renewal if he chooses. At the same time, insurance companies have the right to accept or deny the additional coverage, said senior insurance officials.

C S Rao, chairman Insurance Regulatory and Development Authority (IRDA) reiterated that the rate or scope of the fire cover has not changed following the floods.

Rates cannot change that easily because these fire insurance premium rates fall under the tariff regime, decided by the Tariff Advisory Committee (TAC). "There is no proposal to make any change in this regard," said Rao.