India Inc scrambles to cap cover charge

Corporate India is busy trying to control claims and ensure discounts on premiums next year when insurance tariffs are freed.

Their biggest worry is group health insurance, where claims are as high as 200 per cent of the policy premiums paid.

The country's largest software services firm, Tata Consultancy Services has, according to industry sources, struck a deal with its insurer to keep the annual premium outgo on health insurance unchanged for the next two years.

Company executives, however, declined to comment on the steps it was taking to keep premium payments in check.

The software major, with a workforce of over 78,000, has bought property insurance, directors' and officers' liability insurance, fire insurance and overseas travel insurance for its employees, apart from group health insurance.

From January 2007, price controls on fire, engineering, motor and workmen compensation insurance will be lifted. The discounts or extra premiums companies will have to pay depend on a combination of their tariff and non-tariff portfolios and their claims history.

"Tariff rating will give way to merit rating and clients who want to pay lower premiums will have to showcase their merits," said Uttara Vaid, national head, corporate accounts practice, Tata-AIG General Insurance.

This forewarning is driving companies to scale up risk management practices. Fast-moving consumer goods major Procter & Gamble, buyer of fire and marine insurance for its plants in Goa and Mandideep near Bhopal, has installed sprinklers and hydrants in loading and unloading bays. There has not been any claim in the last 10 years on its fire insurance, although the claim ratio (claim vis-à-vis the insurance paid) is 100 per cent on its marine insurance.

Radhakrishna C, vice-president, India Insure Risk Management Services, said companies with good risk management practices stood to benefit in the long run. "All medium and large companies should focus on this aspect of their operations instead of merely negotiating a short-term price advantage," he said.

Almost 80 per cent of the insurance taken out another by fast-moving consumer goods company, Hindustan Lever, is under price control.

This company has a claim ratio of just 15-20 per cent in its fire policy and is considered very good risk underwritten.

For Hindustan Lever, the remaining 20 per cent insurance covers motor, personal accident and health.

"Our corporate philosophy is to transfer to an insurer only those risks that are not internally manageable and are statutory, like third-party motor insurance. Our corporate risk management philosophy is to analyse, understand and address all significant risks to mitigate their overall impact, rather than apply them in the limited context of insurance," P Chandrasekar, senior manager, insurance and risk management, Hindustan Lever, said.

In effect, companies that so far enjoyed very low marine and group health insurance policy rates are preparing for an increase in their insurance spend.

Manufacturing and construction companies with large risk covers, which are under price control, are expected to see a net gain with a drop in fire and engineering premium rates. This gain is expected to be much bigger than a rise in their outgo on account of group health insurance.