Mumbai attack may not increase terror premiums

The terror attack in Mumbai this week is unlikely to have an immediate impact on terror insurance premiums. General Insurance Company (GIC) and other insurance companies which manage the terrorism pool, said any decision on the matter would only be taken after the total damages were quantified.

Yogesh Lohiya, chairman and managing director, GIC, said, “It is too early to comment on premiums, since the damages are yet to be quantified. The people insured would have to notify the respective insurers about the losses. Only then would we be able to come to a consolidated figure.” This pool covers property-related risks alone and the cover is limited to Rs 750 crore per risk, with pre-defined rates, terms and conditions.

After the 26/11 attacks, insurance companies had to disburse Rs 450-600 crore. This led to a 25 per cent rise in premiums. However, there haven’t been any more increases in the rates since then.

Insurance officials said since Wednesday’s blasts did not cause any major damage to property, claims were likely to be few, leading to less chances of a rise in premiums. Sanjay Kedia, chief executive, Marsh India said, “The expense of insured losses would not be huge, as property losses were minimal this time. During November 2008, the property losses were high.”

Currently, the terror insurance premium for industrial establishments is 0.30 per cent of the total sum insured, while for housing units, the rate is around 0.10 per cent of the total sum insured. This means for a policy cover of Rs 1 lakh, the premium for terror insurance is Rs 300 for an industrial establishment and Rs 100 for an individual housing unit.

However, industry players say the terrorism pool could be expanded to include personal accidents that result from these acts. This would help in immediate payments, owing to ex-gratia given to individuals. This could be similar to a ‘solatium’ fund, created by contributions from all non-life insurance companies from their motor premiums, which cater to victims of hit-and-run motor accidents on a principle of no-fault-liability (Rs 25,000 for death and 12,500 for an injury).

Currently, life insurers offer accidental death benefit riders, which provide cover on death due to terror attacks. A 30-year old male buying an endowment plan for 30 years for a sum assured of Rs 5 lakh can buy an additional accidental death benefit rider of a sum assured of Rs 5 lakh by paying an additional Rs 395. Non-life insurers offer personal accident covers as standalone products for individuals. Terror covers could be either integrated with these products or sold separately as a rider.

Typically, a terror act results in an increased demand for terror covers from companies, industrial units and small enterprises across the country. “Such events trigger a temporary surge in demand by 15-20 per cent for specific event-related covers,” says T A Ramalingam, head (underwriting), Bajaj Allianz General Insurance.

In 2009-10, the rise in premiums and the surge in demand for terror cover resulted in the pool’s total premium income rise to Rs 316 crore from Rs 235.5 crore in 2008-09.

The terror risk pool has now surged to a record Rs 1,700 crore, the highest since the terror attack in November 26, 2008. Before the attack, the size of the pool was around Rs 1,400 crore. Under the terror pool, general insurers cover any loss and liabilities to property that may result from a terrorist attack. This is an optional extension to cover risks underwritten under packages offered on fire, engineering and property damage.