New Gic Policy Offers Umbrella Cover To Industry

The General Insurance Corporation has finally launched the long-awaited industrial all-risk insurance policy with effect from July 1. The policy is meant for customers who have insured an overall sum of Rs 100 crore or more in one or more locations in the country.

The policy offers an umbrella cover for various forms of material damages and business interruption losses, including loss of profit. It will enable companies to buy covers for a variety of risks at lower rates, besides opting for deductibles.

The new policy offers discounts up to 35 per cent of premium rates.

The all-risk policy has been launched more than two years after GIC first published a draft policy. The delay was caused by long drawn-out deliberations with industry representatives.

 

The policy has been the missing link in the range of industrial risk covers. Its absence has often been cited as one of the reasons for the tardy inflow of foreign investments.

The industrial all-risk cover is now expected to improve the level of comfort for investors and financiers of major projects in infrastructure and core sectors. The policy will now enable customers to obtain a comprehensive cover against fire, damage to electronic equipment, burglary, fidelity of employees and loss of profit resulting from business interruptions. It also offers covers for certain perils like leakage, contamination and sub-terranean fire, free of cost.

Companies have so far been forced to buy several policies to cover different risks and the total costs have been very high. Corporates also did not get the advantage of deductibles, which allows a customer to leave a part of its risks uncovered.

Often, companies left some of the risks uncovered because they found that it was cheaper to invest on safety measures than pay insurance premiums.

GIC has, however, come out with a long list of goods and occasions which are excluded from the industrial all-risk insurance. For instance, it will not be responsible for faulty or defective design material, corrosion and rust and destruction of property due to law and order problem.

Material damages have to be insured on their reinstatement value, meaning the price at which the damaged parts or machinery can be replaced and not at their original price. This means a higher rate of premium because reinstatement values are usually much higher than original values except in the case of electronic goods.

In western countries, corporates gauge the extent of loss they are in a position to absorb and leave it uncovered to save on premium payments. Besides, insurance companies offer a premium discount to companies which absorb a part of the risk in the form of deductibles.

The concept has now been introduced by GIC. The new policy prescribes compulsory deductibles up to 5 per cent of sum insured, subject to a maximum of Rs 50 lakh. It also offers the option for a company to seek between 10 and 25 per cent of sum insured as deductibles.

GIC had earlier introduced the advance loss of profit policy to cover the risks in the pre-commissioning stages of Enron and GVK power projects last year. The policy is now available to all industries.

The other umbrella covers that have been introduced in recent months include one covering all aspects of an office and another for the farming community.

In an earlier interview, GIC chairman K C Mittal had told Business Standard, If industry wants an all-risk policy, it should be ready to pay for covering all equipment. If they want to select which equipment to cover, I should also have a choice on how to structure the policy.

Differences between the GIC and its industrial customers were focused on the issue of discounts, the right of a customer to choose what covers he needs and on the overall pricing.

For instance, a well-run industrial plant is forced to pay the same rates as a plant which does not abide by safety standards. Those who abide by safety standards are forced to subsidise those who do not. In western countries, badly run plants have to pay higher premia.

GIC has now tried to overcome the problem by offering premium discounts to customers which abide by regulations and specifications regarding electricity and safety measures.

Salient features

For companies which insure sum of Rs 100 crore or more

Umbrella cover for material damage and business interruption losses, including loss of profit

Offers premium discounts up to 35%

5 % of sum insured is compulsorily deductible, remaining uncovered.

Sums to be insured on reinstatement value