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India’s stalled civil nuclear power programme with foreign participation is set to get kickstarted with public-sector insurers agreeing to create the INR15-billion (US$242 million) insurance pool without insisting on inspection of facilities or support from foreign reinsurers. Abroad, insurance pools insist on inspecting nuclear facilities.

The issue of the insurance pool has been holding up the country’s nuclear power programme since 2010. Under Indian law, besides the plant operator, equipment suppliers are also liable in the event of an accident or mishap up to INR15 billion. This has deterred foreign equipment suppliers from entering the sector, reported the Hindu Business Line.

According to a senior GIC Re official, domestic insurers have now agreed to go ahead with the nuclear insurance pool without insisting on inspection of facilities. The official said that the four domestic insurers — New India Assurance, Oriental Insurance, National Insurance, and United India — can provide cover of up to INR7.5 billion.

GIC Re is looking at overseas nuclear pools for the balance amount. The official said: “We have written to many foreign reinsurers and have made it clear that there will be no compromise on the issue of inspection.”

Further, with the central government accepting the responsibility of providing support as the “insurer of the last resort,” GIC Re is all set to create the country’s first nuclear insurance pool.

The issue has gained urgency as Prime Minister Narendra Modi is understood to have asked his officials for a quick resolution of the issue to facilitate the realisation of an India-US nuclear deal ahead of US President Barack Obama’s visit to India in January.

At present, nuclear reactors in India only have insurance cover for zones that are outside the area of radiation and reactors. The proposed pool will cover material damage and the civil liability arising out of any harm to the hot and cold zones of nuclear plants.

State-owned Indian Oil Corporation (IOC) has taken a mega insurance cover of INR50 billion (US$810 million) for each of its 10 refineries, setting a new benchmark for other domestic oil refining companies.

According to insurance industry executives, IOC renewed its cover last month with a consortium of insurance companies led by United Insurance that will cover damage resulting from fire or any natural calamity, loss of profit occurring due to business interruption and any other damage to property, plant and machinery, reported The Economic Times.

However, loss limit – the initial loss incurred due to damage to the property and which is borne by the company – is pegged at INR50 million. The co-insurers include New India Assurance, National Insurance and Oriental Insurance.

According to the terms of the insurance policy, IOC is to pay a premium of INR552.8 million per annum, marginally higher than the INR542.7 million it paid last year. Industry experts said that rates have been soft in the international market as there is a lot of capacity among underwriters who are sitting on surpluses, which helped IOC to get a good deal.

IOC received a good rate also because insurers have not incurred any claim from the company in the past few years.

The company operates refineries spread across the country with a combined refining capacity of 65.7 mmtpa (million metric tonnes per annum).

General insurers are seeking a maximum limit of INR1 million (US$16,263) on motor third-party liability claims arising from road accidents.

For vehicle owners who want additional cover, an option for additional liability limit cover has been proposed. This additional cover will be for over and above the basic INR1-million policy.

In their feedback to the government on the issue, the insurers backed their call for a ceiling on third-party liability claims by citing high losses arising from such cover. The losses are estimated as exceeding INR120 billion, reported Hindu Business Line.

Mr R Chandrasekaran, Secretary General of the General Insurance Council which represents non-life insurers, said that the Council has submitted its recommendations to the government in connection with proposed amendments to the Motor Vehicles Act.

At present, the liability amount is decided by the courts and can be unlimited. In case of road accidents, compensation as high as INR200-250 million have been awarded.

Insurers feel that a liability cap will help insurers not only in bringing down huge losses, but also in lowering third-party motor insurance rates. Third-party motor insurance rates have been rising annually at the rate of almost 25%.

“A cap on liability will ensure that insurers can estimate the losses and look at appropriate pricing of policies. This is currently difficult to ascertain due to the unlimited liability,” said Mr Vijay Kumar, chief technical officer (motor insurance)at Bajaj Allianz General Insurance.

Third-party coverage is mandatory by law for both commercial and personal vehicles, and the insurance premium in this segment is decided by the Insurance Regulatory and Development Authority.

The Insurance Regulatory and Development Authority (IRDA) is cracking down on general insurance companies offering heavy discounts in group insurance business so as to attract and retain corporate clients. The move signals that premiums would be rising.

IRDA, in its guidelines on risk pricing, said that industry-wise, losses should be considered in pricing a product. The regulator said that due to aggressive competition in the market, risks are not being adequately priced. Fire, property and group health segments have seen heavy discounts offered in spite of rising insured losses.

IRDA will be enforcing the pricing regime from 1 January 2015, reported the Business Standard. The insurer’s own experience with procurement and management costs also needs to be considered in the pricing, said IRDA.

“We will now see the right pricing in the market. Several non-life insurers have been indulging in unhealthy pricing to keep corporate clients in their portfolio,” said the chief executive of a mid-size private general insurance firm. He said that premiums will rise and employers may ask their employees to contribute to part of the premiums for group insurance.

IRDA also said that insurers may consider burning cost in their premium calculations. Burning cost is the estimated cost of claims in the forthcoming insurance period, calculated from previous years’ experience adjusted for changes in the numbers insured, the nature of cover and the rate of medical inflation. This is a ratio used by insurers to protect themselves from larger claims that exceed premiums paid.

If there is acceptance of burning cost that is lower than the computed figure,  the insurance company’s board has to give its approval. Further, this has to be filed as an exception report.

The regulator said that it will monitor compliance to its rules closely and any deviation will be viewed seriously.

Experts said that unhealthy competition is eroding the group health space with prices being 10-20% lower than the loss rates seen in the claims experience. The regulator is looking closely into this matter and will consider having higher capital requirements or solvency rates for those insurance companies which quote un-viable prices.

Long-term motor insurance for commercial vehicles is still some time away because non-life insurers are unprepared to bear the same premium costs for a duration longer than a year.

While long-term motor policies are being envisaged for the segment, general insurers are wary of these products especially in the commercial vehicle category because pricing cannot be revised while a policy is still in force, reported the Business Standard.

In addition, this category of business is a loss-making one. It is estimated that the combined ratio for motor insurance might hit 200% by 31 March 2015 on the back of higher claims especially from commercial vehicles.

“It is not viable to launch three-year policies for commercial vehicles because of the claims experience that the industry has had in this segment. Our motor book will suffer if we do so,” said the head of underwriting at a mid-size general insurer.

According to general insurance company executives, even though overall motor cover prices have risen this year, the increase is insufficient to compensate for underwriting losses and the higher combined ratio.

The Insurance Regulatory and Development Authority recently decided to limit the third-party premium hikes in motor insurance to 9-20%, compared to a proposal from the industry for hikes in the range of 20-137%.

IRDA has also introduced long-term motor third party insurance policy for two wheelers with a three-year term.

The insurance regulator has warned insurance companies that they would be penalised if they accept group health covers at a loss because such losses would ultimately be subsidised by individual health insurance buyers.

The Insurance Regulatory and Development Authority (IRDA) has also called insurance companies to come up with savings linked health insurance plan so that individual buyers do not see a spike in rates as they age, reported the Times of India.

Group health insurance is expected to become more expensive for companies where hospitalisation claims from employees exceed the premium paid.

At present, large companies with loss-making group health covers continue to escape rate hikes by shopping for new insurers. The chase among health insurers to build up top-line growth has resulted in their willingness to accept business even if there is little likelihood of generating a profit. According to IRDA, insurance companies cite these high losses to raise rates on individual policies where the buyer does not have bargaining power.

“We have seen cases where insurers are quoting rates below their burning cost. Since insurance business is nothing but pooling of resources, it is clear that if group premiums are inadequate, they are being subsidised by someone else,” said IRDA chairman T S Vijayan said in his address at a health insurance summit organised by the National Insurance Academy in Mumbai. Burning cost is a measure used to calculate the premium required to cover claim payments.

“We are going to increase solvency margins for companies that accept group health insurance at rates below their burning costs,” said Mr Vijayan. “If the group health premium is below the burning costs, we want you to inform your board about this. This will bring discipline into the underwriting process,” he added.

Speaking of the need for affordable cover for older customers, Mr Vijayan said: “It is essential that there is some kind of a savings-linked health insurance plan. Rather than the premiums going up by leaps and bounds with age, a portion of the premium could go towards savings to be used in old age.”

The Select Committee of the Rajya Sabha, the upper house of the Parliament of India, which is vetting proposed amendments to the insurance law, is considering a proposal for the merger of the country’s four government-owned general insurance companies which would enable them to consolidate their market share.

Several representations have already reached the Committee and the Finance Ministry for the merger of the insurers, reported the Financial Express.

Employee unions of the four insurers – New India Assurance, National Insurance, United India Insurance and Oriental Insurance – had met Finance Minister Arun Jaitley and proposed a merger to form a single general insurance giant. The four have a combined asset base of over INR1 trillion (US$16.4 billion).

With the opening of the market and entry of private-sector companies in the non-life insurance sector and the ensuing real competition, continuing with the four public-sector insurers “appears meaningless”, said Mr KK Srinivasan, a former member of the Insurance Regulatory and Development Authority.

He noted that the government-run insurers have been losing market share, with their private-sector competitors commanding over 40% of the market. There is cut-throat competition for business. Currently, the general insurance market is served by more than 20 private players.

“The cost saving in merging the brick-and-mortar offices will be huge. Virtually every state capital has an administrative office, for each of the four insurers. Merger will bring down the administrative costs tremendously. Robust computerisation also will help,” Mr Srinivasan said. He pointed to the example of the Life Insurance Corporation of India, the country’s only state-owned life insurer which is the most dominant player in the life sector.”

A draft Bill to amend the motor vehicle law has attracted wide attention because of its proposals for big increases in penalties on vehicle owners who fail to buy insurance and traffic offences such as drunken driving and an accident in which a child is killed.

The Road Transport & Safety Bill proposes that if a motorcyclist is caught riding without an insurance policy, the penalty will be INR10,000 (US$163) while owners of light motor vehicles and auto rickshaws will have to cough up INR25,000. For any car or truck driver caught driving without an insurance policy, the penalty is as high as INR75,000. This compares to a fine of just INR1,000 for all vehicles under the law currently in place which is the Motors Vehicles Act, 1988.

“This (the enhanced penalties) will increase penetration of motor insurance,” Mr Vijay Kumar head of motor insurance at Bajaj Allianz General Insurance told the Hindu Business Line.

Although, at present, vehicle insurance is mandatory, many people violate the regulation.

A study by state-run general insurer  New India Assurance shows that nearly 70% of motorcycles and scooters on the road are not insured. About a third of the cars and trucks are uninsured as well.

“Today projects involve a global supply chain, where materials and equipment are sourced all over the world, and this inherently increases the risk,” he said. “When the complexity of multiple jurisdictions is introduced, different legal exposure, contractual obligations, tax and compliance issues, and cultural norms such as work safety have to be taken into consideration.”

Insurance industry executives say that penalties should go beyond fines and include loss of licence for repeated violations. Mr Sanjay Datta, head of motor insurance at ICICI Lombard, said: “If the rules say that a three-time motorcyclist offender will lose his licence, it will bring discipline.”

Meanwhile, the Insurance Regulatory and Development Authority (IRDA) has shelved its plans for liberalising third-party motor insurance tariffs, reported the Economic Times. This is due to opposition from public-sector general insurers who fear they may be forced to take on most of the burden if  private insurers charge exorbitant premiums for high-risk vehicles.

Third-party insurance, which is mandatory for every vehicle in India, is highly unprofitable as the liability for insurers is unlimited and the premium is fixed by the insurance regulator. At present, due to the high claims ratio of around 140% from third-party motor insurance, insurance companies provide cover from a common declined pool instead of from their own books.

India’s Supreme Court has ordered the country’s four state-owned general insurers to pay out at least 50% of claims arising from the devastating Jammu and Kashmir (J&K) floods without any verification.

These payouts will cost the insurers around INR40 billion (US$653 million), reported the Times of India.

The Supreme Court’s decision, handed down last week, was an endorsement of the J&K High Court’s 30 September order to the insurance companies to provide interim relief of 95% of the claim amounts of those who had taken insurance cover for INR2.5 million or less and 50% for those claims by persons who had taken cover of more than INR2.5 million.

Attorney General Mukul Rohatgi had pleaded with the Supreme Court on behalf of the insurance companies that the High Court order was open to abuse by unscrupulous elements and that the insurers should be permitted to at least conduct a preliminary survey of the damage before settling claims.

He said that the companies did not oppose the payments but were only seeking time till 30 November so that they could conduct assessments. He said if an actual estimate of the damage to insured properties and vehicles was taken, it would not exceed INR10 billion, but the High Court order would cast a burden of INR40 billion on the insurers which are United India, National, Oriental India and New India Insurance.

The Supreme Court bench said instead: “You just have 99 surveyors in the field and those small shopkeepers whose goods were under water for days, what will they be left with? They must get immediate relief as they have suffered heavily.”

The Supreme Court said that the hardship suffered by the people affected by the heavy floods, which hit the region last month, warranted a departure from ordinary procedure.”

Taking into account the Attorney General’s apprehension that the court decision could be abused by unscrupulous elements, the bench said: “If there is a little misuse in such a situation, let it be.

The government-owned insurance companies said that as of 9 October, they had received 9,917 claims involving an estimated amount of INR9.8 billion and that they had already issued 983 cheques for a total of INR251 million.

The Supreme Court decision could make the insurance companies susceptible to similar claims in other flood-affected areas, where affected persons would cite the court order refusing insurance to conduct preliminary damage surveys before settling claims.

Singapore has become Asia’s insurance hub for insuring construction risk , with companies based in the city-state projected to underwrite US$4.5 billion worth of construction projects this year, a 22% increase over the past five years. The figure is set to increase to US$6.5 billion by 2018, participants at a conference last week hosted by AIG were told.

New research by AIG found that for the first time, construction in emerging markets is outpacing that in developed markets.

Mr Daniel Abramson, AIG’s global head of construction, said that this shift is being driven by Asia’s population growth and increasing urbanisation.

“Last year, 52% of the world’s construction was in emerging markets. By 2025, we expect this figure to grow to more than 60%, with big infrastructure projects in China and India set to lead the way,” he said. The insurance sector in Singapore would play a key role in promoting this growth.

Mr Rudi Spaan, AIG’s head of broker and client management, said that what is being seen in Singapore not only indicated the increasing number of projects being undertaken across Asia, but also the multiple risks involved in these projects.

“Today projects involve a global supply chain, where materials and equipment are sourced all over the world, and this inherently increases the risk,” he said. “When the complexity of multiple jurisdictions is introduced, different legal exposure, contractual obligations, tax and compliance issues, and cultural norms such as work safety have to be taken into consideration.”

Companies therefore need to look for tailored solutions to ensure they implement risk management strategies that are tailored specifically to their project because in today’s environment there is no one-size-fits-all strategy, he said.