IRDA wants LIC in energy insurance pool for Iran

NEW DELHI: Insurance watchdog has suggested Life Insurance Corporation ( LIC) should join the energy insurance pool proposed by the government to provide cover to domestic firms for processing Iranian crude oil.

Suggestion comes after general insurance companies and oil firms raised concerns that the proposed Rs 2,000 crore energy insurance pool may not be sufficient to provide risk cover to Indian refineries processing Iranian crude.

At present, Indian general insurance companies provide cover to oil refineries and then re-insure that risk with big global reinsurers by paying a premium, which reducing the risk on their books.

However, after the US-led sanction on Iran, global reinsurers provide re-insurance with "sanction clause," which limit the amount to be paid in case a claim arises, forcing the government to explore other options such as energy insurance pool.

A senior official of LIC confirmed that Insurance Regulatory Development Authority ( IRDA) had moved the proposal, but said the country's biggest insurer is yet to take a call.

"We are aware of the observations made by IRDA. It is too early to say that LIC will participate in the proposed pool. The company will take any decision after considering the interest of its policy holders," the official said.

Under the proposed mechanism, an insurance pool will be created from the premiums received by general insurers from such contracts and a matching contribution will be provided by the oil ministry.

This will reduce the need for Indian insurers seeking re-insurance from the bigger global players as any claim that may arise could be settled from this pool.

Another LIC official, however, said that it is an unviable business proposal and since LIC is a commercial firm it will not participate in the proposed pool.

"There is absolutely no point as the company will not get any premium or interest. If general insurers want to avail a loan that can be looked at" he said.

The government so far has been unable to kickstart the pool because the corpus was found to be inadequate for providing the large insurance cover refineries wanted.

IRDA, in its observations, had noted that since the pool is being created in national interest with participation from government companies, the pool administrator may approach LIC.

"The current regulations allow LIC to participate in such a pool, and further the life insurer can gain from diversification in its portfolio," said an official, aware of the developments. "It will be a welcome move if LIC can join the EIP (energy insurance pool) and in that case there will be no need to pursue foreign reinsurers," said a senior official with United India Insurance. State-run Mangalore Refinery & Petrochemicals (MRPL) is the worst affected by the sanctions imposed by re-insurers as it is the biggest buyer of Iranian crude oil.