With Insurers Shying Off Risk, Bonds May Cover Disasters

The country will witness a trend of bonds being issued for catastrophe cover as insurance companies and reinsurers are reluctant to insure such risks, according to K K Srinivasan, secretary to the tariff advisory commission.

Citing the example of Disney Land in Japan where the owners, who failed to manage an insurance cover, floated bonds to have it covered, Srinivasan said such bonds might be the order of the day in India too. The acceptability of such bonds will, however, depend on the profile of issuing companies.

Delivering a lecture on 'Liability insurance scenario in India', organised by the Bengal Chamber of Commerce and Industry last week, Srinivasan said the scenario in India is moving towards legal liabilities from moral liabilities although there has been a little change in the concept of such insurance facilities.

"The framework has remained the same although there has been a rapid change from negligence based scenario to legal scenario," he said.

Srinivasan also indicated that products such as insurance on interest, fines and penalties might also come to India as these has been in vogue in developed countries.

General manager, Iffco-Tokio General Insurance Co Ltd, S Sensharma said that since directors and officers are now perceived as professional managers who should be accountable for their action and can be held personally liable if their neglect results in a loss to shareholders or other entities the importance of such insurance cover is assuming importance in India.

While, director & general manager, National Insurance Co Ltd, P B Ramanujam, said "Fixing brokerage at a higher level of 30 per cent would have crippling effect in the insurers as corporate agents would already be competing with them. While brokers, though perform a little enhanced function are certainly entitled to a fee higher than that of a agent and insured may not afford to pay more than what they pay to agent. However, it might be dual payment system, partly from the insurers and partly from the insured."

In any case, he said, the General Insurance Council will have to intervene and issue a fiat that payment from the insurers side will not be more than 15 per cent. "Otherwise this would lead to hike in premium income by way of a loading which will not be welcome by the industry, trade and commerce as there is no additional charge till now," he added.