Insurers still hot on Reliance, Tata accounts despite CAG strictures

Despite a CAG stricture, public sector insurance companies-National Insurance Company and Oriental Insurance Company- see the Reliance and the Tata groups as profitable portfolios.

The Comptroller and Auditor General (CAG) had questioned the two state-owned insurance companies on what basis the risk policies were issued to Reliance Infocomm and Tata Teleservices.

Oriental Insurance has already responded to CAG saying that it has rejected more than 50 per cent of the claims received. Nevertheless, senior executives at the insurance company pointed out: "It is a question of cross-subsidisation, and for us Reliance remains a profitable account."

Oriental Insurance has a share in Reliance Industries' Rs 40,000-crore risk cover for Jamnagar, Hazira and Patalgana refineries.

National Insurance's share in underwriting Reliance's Rs 40,000-crore risk cover increased to 30 per cent from a mere 5 per cent in 2003-04, following its willingness to grant insurance cover for handsets and default liability of Reliance Infocomm.

A K Banerjee, assistant general manager, National Insurance, who handles the Mumbai region, said that the total premium received from the Reliance group amounted to Rs 185 crore in 2003-04. The company received claims worth Rs 152 crore from Reliance Infocomm.

National Insurance also gained a share of the risk business of the Tata group in 2003-04. However, the business gains of National Insurance and Oriental Insurance are at the expense of the New India Assurance, which saw its share of the Reliance account fall to 40 per cent from 70 per cent in 2002-03.

This was after New India turned down Reliance Infocomm's business as it found the business to be too risky and unprofitable.

Meanwhile, the government has taken up the issue of the high insurance claims of Reliance Infocomm and Tata Teleservices.

According to the CAG report tabled in Parliament last week, National Insurance received claims worth Rs 252 crore against a premium income of Rs 89 crore. Oriental Insurance would have to fork out Rs 33.45 crore in claims.

CAG has stated that the two insurance companies received claims against risk cover on handsets and default payments much in excess of the actual premium paid during the two-year period up to October 2004.

CAG stated that National Insurance received a premium of Rs 27.39 crore from Reliance during December 2002 to October 2004, but received claims to the tune of Rs 91.23 crore up to October 2004.

Similarly, Oriental Insurance received claims from Reliance amounting to Rs 63.53 crore against the premium of Rs 17.02 crore paid. The company settled claims for Rs 19.64 crore, repudiated claims for Rs 30.08 crore and claims for Rs 13.81 crore are pending.

CAG has asked the finance ministry to investigate into the issue, highlighting the fact that National Insurance failed to take adequate reinsurance cover to reduce losses even as its exposure had crossed Rs 5,000 crore in insuring the handsets of both Reliance Infocomm and Tata Teleservices.