Business Standard

Infra funding spurs engineerin­g insurance premium

Premium in the segment has risen to ~4,848 cr in April–february period of FY24 from ~2,635 cr in FY20


Engineerin­g insurance premiums in India have doubled in four years on the back of a surge in infrastruc­ture investment­s during the period.

The gross direct premium underwritt­en in the engineerin­g segment has risen to ~4,848.06 crore in the April-february period (11 months) of 2023-24, or FY24 (the annualised figure is nearly ~5,300 crore), from ~2,634.9 crore in 2019-20 (FY20).

According to General Insurance Council data, the gross direct premium underwritt­en increased by 30.84 per cent year-on-year in 11MFY24, from ~3,705.35 crore in the correspond­ing period of 2022-23.

“Engineerin­g is the fastest-growing business segment in the general insurance industry. The high growth can be explained by the huge public investment happening in the infrastruc­ture space, which translates into constructi­on insurance premiums for the general insurance market,” said Hari Radhakrish­nan, an expert from the Insurance Brokers Associatio­n of India (IBAI) and regional director for First Policy Insurance Brokers.

The government has been increasing its share of outlay towards capital expenditur­e (capex). In the Interim Budget, the government set a target of ~11.1 trillion in capex for 2024-25 as compared to ~3.4 trillion seen in FY20.

Engineerin­g insurance provides economic safeguard to risks faced by ongoing constructi­on projects, installati­on projects, machines, and equipment in project operation.

According to insurance industry experts, in the past few years, India’s economic growth has been supported by constructi­on with major investment­s in roads, metros, renewable energy, heavy industries, rural electrific­ation, railways, green hydrogen, semiconduc­tors, etc.

The government­s at the Centre, states along with Indian corporates have been making major investment­s in greenfield and brownfield projects.

Among the constructi­on activities, roads form the major chunk of engineerin­g insurance, followed by metros and renewables.

As infrastruc­ture activities in India pick pace, the number of engineerin­g insurance policies sold in the country has also nearly doubled. Further, although the loss ratio has been favourable (indicating profitabil­ity), the premium rate has experience­d 10-15 per cent growth in the past four years in large complex engineerin­g projects, which require support from reinsurers.

T A Ramalingam, chief technical officer, Bajaj Allianz General Insurance Company, said, “Natural catastroph­e (nat cat) rates have increased since the insurance industry has suffered multiple losses, which have impacted the engineerin­g lines of business also. Rates have gone up slightly, maybe about 10-15 per cent, owing to such natural calamities, especially across fire and engineerin­g insurance; other than that, there is not much change.”

The increase in natural catastroph­es both globally and in India has led to an upward revision in storm, tempest, flood, and inundation (STFI) rates during the past four years.

“The (STFI) rates were 0.225 per mille before 2018, which have increased to 0.3 and further increased to 0.4 per mille in 2023. Earthquake rates have remained the same over the years. Overall, there is an increase in rates due to nat cat events happening during these years,” added Pavanjit Singh Dhingra, director, IBAI, and joint managing director (MD), Prudent Insurance Brokers.

The engineerin­g insurance premiums are determined by the nature of the project, sum insured, and topography, among other factors. In the case of larger projects, reinsurers carry nearly 80-85 per cent of the risk. Due to higher risk in this line of business, several large reinsurers like Munich Re, Swiss Re, SCOR, and others have entered into treaty arrangemen­ts with each other.

Furthermor­e, according to insurance brokers, despite the risk, there is no dearth of reinsuranc­e capacity for the segment. However, insurance companies opine that they are finding it difficult to find reinsurers to support them.

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 ?? Source: General Insurance Council ?? UPTREND
Gross direct premium underwritt­en for engineerin­g insurance (in ~cr)
Source: General Insurance Council UPTREND Gross direct premium underwritt­en for engineerin­g insurance (in ~cr)

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