Corporates Oppose 10% Risk Surcharge

Corporate India is agitated over letters received from insurance companies on the imposition of a 10 per cent surcharge. Following this, representations have been made by a number of Corporates including Century Enka and Mukund Ltd, to the Tariff Advisory Committee (TAC) and insurance companies, questioning the justification behind the levy midway into their insurance covers. The 10 per cent surcharge has been levied on fire and engineering tariff covers, effective October 1.

The lack of proper legislation or notification issued by the insurance authority have put state insurers in a precarious situation. Some are of the view that should the insured (customers) decide not to pay up the surcharge, there is no legal recourse to force them to do so. At the same time, legal experts challenge that should policyholders fail to pay the 10 per cent levy, insurance companies have the right to cancel policies. "This is in-built into all contracts wherein either side can cancel the cover and give appropriate notice period," they stated.

 

Customers are questioning what the additional surcharge would cover, as the TAC has failed to identify clearly what portion of the risk of an individual policy would be covered under the surcharge. The million dollar question some insurers are thus asking is what will happen should the customer choose not to pay?

Many insurance companies in London and the US have cancelled insurance policies. There has also been a widespread re-rating of risk covers in the West following the September 11 terrorist attacks on the US, said reinsurance brokers. Insurance companies in the present circumstances are entitled to cancel and re-rate (revised) the premium levied. Fali A Poncha, chairman International Reinsurance and Insurance Consultancy Services, said: "The Indian insurance industry is justified in levying a surcharge. Circumstances of war and war-like operations are never envisaged in a tariff structure". All tariff policies are based on certain situations and "known" circumstances. These circumstances have undergone a major change. India has decided to support US in its fight against terrorism, and Taliban is on our borders.

Incidentally, all contracts can be cancelled and no reason need be assigned by the insurer to the policyholder, said Poncha. The moot question is whether the insurance companies are geared up to go back to each policy, calculate the pro-rata surcharge payable and send out notices to the respective policyholders, he said.