Companies face 3 to 9 fold increase in insurance cost

■ Eight segments suffer steep hike as GIC Re increases rates

Malaysia may retaliate against an EU plan to curb palm oil use by purchasing new fighter jets from China instead of European arms companies, its leader said on Sunday. Malaysia is the world's second largest palm oil producer after neighbouring Indonesia, and recently threatened to challenge the bloc's plan to phase out its use in biofuels at the World Trade Organisation. After enjoying a decade of low rates, companies buying insurance covers for their plants, machinery and properties are seeing a three- to nine-fold rise in insurance cost from this month. This is because the country’s largest reinsurer, General Insurance Corporation of India (GIC Re), has passed an endorsement stating that insurers wanting to utilise its treaty—an arrangement where capital is pooled by various reinsurers to give reinsurance support to insurers—will have to quote higher premium rates for providing covers to certain manufacturing segments.

Thus, premium rates have gone up for companies manufacturing rubber goods, plastics, textiles, chemicals below 32 degrees centigrade flashpoint, besides transporters godowns, steel plants and thermal power plants. The new rates are based on claims data with the Insurance Information Bureau (IIB), an insurance and aircraft insurance) while charging some premium for providing cover for natural catastrophes.”

“Since GIC Re is the market leader, all insurers have treaty arrangement with GIC Re. With huge claims from corporate clients, GIC Re had been suffering and so it identified eight sectors that have huge claims outgo and where the premiums are not sufficient to meet the claims and told the insurers that treaty is available only if they follow IIB rates, which are based on the burning cost (claims outgo) of each sector,” added the broker.

Explaining the impact, another insurance broker said, “For power and pharma companies, the premium rates have gone up three times while for chemical manufactures, where the loss ratios were very high, the rates have gone up nearly nine-fold.”

Illustrating, the broker, said: "Earlier, the overall premium rate for chemical manufaturers (below 32 degrees centigrade flashpoint) was 27 to 28 paise for a sum insured of Rs 1,000, which is now 268 paise for FLEXA, natural catastrophic and earthquake cover, which translates to a nine-fold rise in insurance cost."

"Soon after detariffing, many insurers were charging 27 to 28 paise for a sum insured of Rs 1,000 for providing a natural catastrophic cover and 5 paise for FLEXA cover. The same was Rs 1.25 during the tariff era. The claims ratio in the eight identified sectors is steep. Now with the new rates, some sanity will prevail in the market. However, the bad thing is that corporate clients which have a favourable claims ratio too will have to pay a higher premium.”

Said the CEO of an insurance company, “Reinsurers have suffered large catastrophic losses worldwide. Secondly, with GIC Re being a listed company, profit is now its motive.”

A text message sent to Alice Vaidyan, Chairman and Managing Director of GIC Re did not elicit any response.