The scale of the damage due to the terror attacks in Mumbai has prompted general insurance companies to revise the terms of providing such insurance cover. The General Insurance Corporation, the reinsurer (GIC Re), has proposed to increase the terror pool from Rs 750 crore to Rs 2,000 crore by increasing the term rates for providing such cover. If Insurance Regulatory Development Authority (IRDA) approves the proposal, the term rates could be brought under the slab structure. For a terror cover of Rs 750 crore, the industrial risk coverage could go up from 22 paisa to 30 paisa for every Rs 1,000 of sum insured, a 36 per cent increase. For the residential risk in the same slab, the cover will go up by 25 per cent.
In India, general insurers do not provide a direct cover against terrorism. It’s an add-on feature in the fire policy and the additional premium is transferred by the general insurer to a common terror pool account managed by the GIC Re. This pool, which had Rs 700 crore accumulated in the account, was created after the September 11 attacks in America in 2001. The recent terror attacks may have wiped out a significant amount from this pool, and hence the need to increase the term rates.
“Suddenly the demand for terror coverage is coming not only from metros but also from the tier-1 and tier-2 towns. Since there is a limitation to providing risk cover in a particular location, there is a need to increase the term rates,” says R. Krishnamurthy, MD, Watson Wyatt, an insurance consulting firm.
While the proposed slab structure differentiates on the basis of amount of cover, it doesn’t differentiate on the basis of the quantum of the risk or extent of damage to the insured entity. As a senior member of the GIC points out, the magnitude of risk is more in a five-star hotel than a small restaurant. “Therefore, terror insurance rates should be higher for crowded places like malls and hotels,” he says.