Around 1,000 stock brokers through their forums have bought the mandatory stock brokers indemnity insurance policy that covers them for little. According to Securities and Exchange Board of India (SEBI) regulations, every stock broker should mandatorily have a minimum professional indemnity insurance of Rs 5 lakh.
However, non-life insurance companies saddled with a high claims ratio of more than 170 per cent under the Errors and Ommissions (E&O) section of the indemnity policy, primarily on account of punching errors at dealer terminals, are offering more than 50 to 70 per cent discount to brokers who buy a cover without the E&O section.
As a result, the BSE Brokers forum, an association of 550 stock brokers of the Bombay Stock Exchange, bought the cover on June 30 from HDFC Ergo General Insurance without the E&O section. Besides excluding the E&O cover, the umbrella policy also excludes cover for branches, intermediary cover, IPO and book building cover, besides doubling the deductible from Rs 25,000 to Rs 50,000 this year. A deductible is an amount that the insured first pays to the insurance company before getting the claim compensation.
As a result, the BSE brokers forum has saved 81 per cent premium by getting a cover for a mere Rs 3,500 per policy compared to Rs 18,000 for a comprehensive professional indemnity policy.
On the same lines, the Association of National Exchanges Members of India (ANMI), which has 1,100 members has also bought a cover (on May 31, 2009) from HDFC Ergo without the E&O section. Though the premium for a NSE broker is Rs 40,000 for a comprehensive Rs 5 lakh cover, ANMI paid a premium of Rs 5,515 per policy by buying a minimum cover.
Currently, New India Assurance, Oriental Insurance, Iffco Tokio General Insurance and HDFC Ergo General offer stock brokers indemnity insurance policy.
“A very high number of E&O claims are pending with insurance companies. So what is the use of paying such a high premium for buying E&O cover when the claim will not be paid by the insurance company?,” an official of BSE Brokers forum said.