Terror cover affordable for firms

MUMBAI: The frequency of terror attacks may have risen in India, but thanks to booming reserves of insurance companies, terror cover has become more affordable for corporates.

The 'terror pool’, a virtual fund comprising commitments from all general insurance companies, has grown to around Rs 800-900 crore since it was first formed in the wake of the 9/11 attack. This year, premium rates were also reduced, as claim payouts were very low compared to the premium that was being collected by insurance companies.

The terror pool, which originally provided cover up to Rs 200 crore, is now in a position to insure terror risks up to Rs 500 crore. Despite a spate of terror incidents, the Mumbai blasts of July 2006, the Hyderabad blasts last week and other smaller incidents in the North East and North India, insurers are not revising prices.

“As compared to the premium, claims payouts on account of terrorism have been quite low,” said Bajaj Allianz General Insurance underwriting head TA Ramalingam. He added this was because unlike in the West, terror incidents here result in a major loss of life, but relatively low losses in insured property.

Insurers point out that most properties targeted by terrorists have been government-owned, and the government does not cover its properties. This year, along with the price of terror insurance, regular property insurance cover has also become cheaper because of detariffing.

State-owned insurers have been able to support sharp reduction in premium because of the significant returns, their reserves have been generating because of the uptrend in capital markets. The situation is similar in the international market. Large projects such as oil refineries buy insurance cover directly from the international market through reinsurance driven policies.

“As of now, terror cover up to $200 million is easily available in the international market. In fact, rates were on downtrend until the London terror attacks at Glasgow airport a couple of months ago stopped the slide,” said an insurer.

Although the insured value of refineries is much higher than the $200 million of insurance available, what corporates do is they buy a 'floater’ cover. Floater cover refers to a sum insured that can be used by any insured asset. “It is very unlikely that a single incident would cause a loss of over $200 million,” he added.

However, insurers warn that any major terror attack on an insured property could change the market completely. In order to get corporates to improve their risk management, insurers are asking them to take on higher deductibles of up to $5,00,000. This means that corporates would have to bear claims up to the level of the deductible.