ICICI Lombard bid for IOC cover raises a stink

ICICI Lombard General Insurance is close to getting the coveted Indian Oil Corporation's (IOC) account, but other insurers are miffed with Lombard's bid price. Last month, ICICI Lombard emerged as the lowest bidder for providing Rs 59,000 crore sum insured cover to IOC at a premium of Rs 48 crore.

ICICI Lombard's aggressive bidding has made other general insurers to decide against agreeing to be the co-insurers to the risk.

The IOC's tender document had stated that the successful bidder would have to reinsure 100 per cent of the risk if it failed to rope in other insurers.

The IOC cover is a refineries package policy, covering fire risk, business interruption and terrorism risk for a sum insured of Rs 59,000 crore. The deductible on the fire policy is Rs 2.5 crore and a similar Rs 2.5 crore deductible on business interruption up to 30 days. That means, in case of a claim, the amount would be cut from the gross claim.

The key rival bidders for the IOC account were the state-owned public sector general insurance- New India Assurance, Oriental Insurance, National Insurance and United India Insurance.

These insurers individually quoted premiums between Rs 55 crore and Rs 56 crore and have refused to share the risk with ICICI Lombard. Senior officials of the public sector insurance companies confirmed that they have refused to share the risk with ICICI Lombard because of the low price quoted by it.

"Our terms, price and coverage is not matching with those of ICICI Lombard. We don't want to underwrite at that low price....We are not able to get reinsurance support from the international market at that price."

Industry sources said IOC had given ICICI Lombard 21 days to finalise the reinsurance support for the account. The deadline was September 28.

In turn, ICICI Lombard had given a letter to IOC stating that they will be in a position to place the risk with reinsurers.

An ICICI Lombard spokesperson said, "The risk would start from October onwards. We have appropriate reinsurance support." IOC policy qualifies as a large risk policy since the total sum insured exceeds Rs 2,500 crore at one location for property insurance, material damage and business interruption combined.

According to Insurance Regulatory Development Authority norms, the quotes offered by the insurer has to be in line with reinsurer's price, terms and conditions.

A similar incident had occurred in 2005, when Bajaj Allianz General Insurance had bagged the account with the lowest quotation.

The four public insurers had at that time too refused to share the risk forcing Bajaj Allianz to scout for reinsurance support for the whole account.

Last year, United India Insurance had bagged the IOC policy by quoting a premium of Rs 51 crore for a sum insured of Rs 52,000 crore. It was the lead insurer sharing the risk with the remaining three public sector insurers, ICICI Lombard and Bajaj Allianz.

ICICI Lombard is fast emerging as a strong contender for bagging corporate accounts. Recently it has become the lead insurer for Reliance Industries Limited's account and is close to bagging the railways account too.