Large risk policy cut to Rs 2,500 cr

Insurers free to tailor big corporate cover.

General insurers will soon have complete freedom to tailor policies for most of their bigger risk portfolios, with large risk being redefined by the country's insurance regulator.

Insurers will be free to change the terms and conditions suited for a particular corporate and provide a bundle of covers in a single policy, if the sum insured through the policy is Rs 2,500 crore or above for property and business interruption at a single location from January next year.

In other words, companies will now be able to get fire, business interruption, property, machinery breakdown, flood, riot, strike and malicious damage, earthquake and accident covers bundled into a single policy.

These policies, being reinsurance driven, will be defined as large risks in a tariff-free regime set to start from January next year.

The Insurance Regulatory Development Authority of India (IRDA) in its final guidelines for file and use requirements for general insurance products, issued on September 28, has brought down the ceiling for large risks.

The earlier file and use guidelines, issued in August, had defined large risks as insurance for a total sum insured of Rs 10,000 crore or more for property insurance, or Rs 100 crore or more per event, or in the aggregate for liability insurance, or for packaged insurance products.

"Risks with a sum insured of Rs 2,500 crore or more per location will qualify as large risks. The earlier guidelines defined large risks as having a total sum insured of Rs 10,000 crore or more, adding all the locations in different parts of the country. Had we followed that, very few risks would have qualified as large risk," IRDA Chairman CS Rao told Business Standard.

By bringing down the ceiling to Rs 2,500 crore at a single location, the IRDA is seeking to allow better management of risk by corporates.

"The aim is to retain reinsurance in the country itself as General Insurance Corporation has a limited reinsurance capacity; Rs 1,500 crore of probable maximum loss and another Rs 1,500 crore for a few high-value risks," said an insurance official.

Typically, large risk policies are designed for individual, large corporates, where the rates, terms and conditions of cover may be determined by referring to the reinsurers.

Though the IRDA will allow free pricing of products in a detariffed regime, the terms, conditions and policy wording cannot be changed till March 31, 2008, for any tariff policy.