Disasters Spur Plan For Catastrophe Fund

A series of disasters ranging from the Gujarat earthquake in January and the September 11 attacks in the US, has forced insurance companies and the regulator to plan a catastrophe reserve fund to be used in case liability from a single incident exceeds Rs 50 crore.

The general insurance council has recommend that, non life insurers contribute either 5 per cent of the gross domestic product or 10 per cent of gross direct premium, whichever is higher. The reserve would be in addition to the 10 per cent surcharge levied on fire and engineering insurance.

Speaking on the sidelines of the CII-organised sixth Insurance Summit New India Assurance chairman and managing director and Gipsa K N Bhandari said that the tariff advisory committee headed by Insurance Regulatory and Development Authority chairman N Rangachary is meeting in Chennai to take a final opinion.

 

He added that the contribution of each insurance company would be decided at tomorrow's meeting.

The meeting would also discuss alternatives to provide terrorism covers to mega risk projects where terrorism covers were withdrawn by the global insurers following the September 11 attacks, Rangachary said.

The meeting would consider the eligibility of a company to access funds from the proposed reserve. One of the proposals was that a company would be compensated from the fund if it suffered a loss claims aggregating Rs 50 crore from a single disaster.

Earlier, the general insurers had mooted a contribution of 2.5 per cent of the gross direct premium. But following the September 11 terrorist attacks and the hardening of insurance rates worldwide, the percentage had been raised.

Bhandari said that the companies had sought tax exemptions for contribution to the cat reserve. The fire and engineering surcharge would result in accretion of Rs 250 crore during the fiscal, Bhandari said.