Terrorist Acts May Be Out Of Cover

Going forward property or casualty insurance policies in India are likely to exclude losses due to terrorist acts.

This is because of indications that global insurers may not in future offer cover for acts of terrorism. The local insurers, therefore, may be forced to exclude terrorism from the risk cover.

"Insurers are bound to change the way property/casualty insurance policies are written," Robert Hartwig, chief economist for Insurance Information Institute in New York, said in an overseas insurance publication.

"In future, more of these policies will be changed to exclude losses due to terrorist acts and that this exclusion may become as commonplace as the 'acts of war' exclusion found in virtually all property/casualty insurance policies," he said.

Since the assassination of Indira Gandhi in 1984, terrorist cover has been popular, and this demand increased with the 12 bombings that shook the financial capital of the country on March 12, 1993.

In 1997-98, insurance companies made this cover a part of the entire package wherein 10 per cent of the sum assured was the liability of the insurer.

Terrorist damage is a part of riots, strikes, and malicious damage endorsed by the insurance companies.

Many state insurers fear that with rising claims that will plague global insurance companies, the price of the cover and the ability of getting the same will be negatively affected.

"There is a trend demerging the terrorist act cover from the prevailing risk cover on property damages. We might have to charge an additional premium for terrorist cover," said officials at the New India Assurance Company.

In India, terrorist damage is tariff-based and is included in any risk cover taken for damage to property.

Earlier, it used to be charged separately at the rate of 10 paise per Rs 1,000 sum assured. Reinsurance brokers anticipate a 500 per cent rise in the premium for terrorist risk cover.

This follows Indian insurers anticipation that global insurers will either back out of insuring against terrorism or else decrease the extent to which such a cover can be offered. "They might limit it to 5 to 10 per cent of the property value," they stated. As insurance companies will be affected by the heavy claims, they might not choose to participate in future.

The world's largest insurers -- Swiss Re, Chubb Corporation, Axa -- have huge exposure to the tragedy. Swiss Re has reportedly stated that it alone faces claims to the extent of $1 billion. Axa officials stated that it was still early days to take a view of whether or not they will continue to offer terrorist cover.