With foreign reinsurers increasing their rates steeply following the global financial crisis, Corporate India is finding their insurance cost increase by more than 50 per cent. And now they are turning to state-owned reinsurer, General Insurance Corporation (GIC), for buying their mega risk policies.
Essar Oil, which renewed its mega policy on Saturday for its Vadinar Oil Terminal and Vadinar Power Corporation, has this time bought the policy from GIC for Rs 18,500 crore.
Mega policies are large policies with the value of cover being more than Rs 2,500 crore and are designed by reinsurers who take these risks on their own books from the insurance companies.
According to a senior official involved in the negotiations, foreign reinsurers were insisting on excluding the first 60 days in case of a claim in the loss of profit policy and quoted $5 million deductible for property damage policy. But GIC has agreed to exclude only the first 30 days and quoted a deductible of $1 million.
A loss of profit cover pays for the actual loss of gross profit incurred due to a delay in commencement of a project. A deductible is an amount that the policyholder first pays to the insurer before the insurance firm pays the claim amount.
Dinyar Jivaasha, group global head and senior VP, corporate risk and insurance management for Essar Group said, “Global reinsurance capacity has shrunk and foreign reinsurers are insisting on very high deductibles. Besides, solvency margins (read capital adequacy) of foreign reinsurers have fallen substantially too. By taking the policy from GIC, we have saved almost 50 per cent.”