United India covers Balco for Rs 9 crore

NEW DELHI: Post-detarrification, public sector insurance companies seem to have declared war on private insurance providers. General insurance provider United India Insurance recently covered aluminium maker Balco’s Rs 3,690-crore assets for an annual insurance premium of just Rs 9 crore. The insurance cover for the Rs 3,690-crore assets includes material damage and interruption of business for Balco’s smelter plant in Korba for the period February 2007 to January 2008. When contacted by ET, M K Garg, CMD, United India Insurance, said the company has been providing insurance cover to Balco for many years but declined to comment on the financial details of the present insurance cover.

According to papers available with ET, the premium-sharing ratio among co-insurers for the insurance cover will be such that United India Insurance will take 60% of the cost, Cholamandalam MS General Insurance will bear another 15% and ICICI Lombard General Insurance another 10%. The remaining 15% was to go to Reliance General Insurance but it is believed to have backed out.

Under the total insurance cover of Rs 3,690 crore, property damage is insured for Rs 2,795 crore and business interruption is insured for Rs 895 crore. In a bid to create a level-playing field for private and public sector insurance providers, detarrification has been brought into the insurance sector from January 1, 2007. This has led to market-determined tariffs for motor, fire and engineering insurance, which till now were regulated by IRDA. Premium rates were expected to fall in the sector with greater competition, even as the risks continue to remain the same.

Industry analysts have cautioned that extremely competitive bidding may worsen the claims ratio for the industry. In the bidding process, United India obtained quote from international market on a loss limit basis of Rs 900 crore but has offered Balco full insurance cover. For the reinsurance cover, it is believed that General Insurance Company reportedly quoted Rs 20 crore as premium but United India quoted a premium of just Rs 9 crore to bag the order from Balco.