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Insurance companies including New India Assurance and General Insurance Corporation are expecting a combined loss of INR6.5 billion (US$107 million) from a fire that broke out at Mittal-Hindustan Petroleum refinery in northern India in June.

In comparison, the 2011 terror attack on the two Mumbai hotels, the Taj and Oberoi, had led to insurance claims totalling INR5 billion. However, those claims were paid out of a national terrorism pool whereas insurers will have to pay for the refinery fire losses themselves, reported the Economic Times.

The refinery was insured for INR75 billion under a mega risk policy which also covers loss of profit due to business interruptions. New India Assurance, which is India’s largest general insurer, is the lead insurer with a 75% share in the policy. A New India Assurance executive said that surveyors are assessing the loss and added that the company could pay out up to INR500 million.

Other insurance companies involved include United India and SBI General Insurance. India’s national reinsurer GIC Re is the lead reinsurer in this instance.

Mr A K Roy, Chairman and Managing Director of GIC Re, said that the expected claim of around INR6.5 billion from the vapour fire explosion is the biggest in recent times. He said:  “We have provided reinsurance and have got protection against it. Our exposure can go up to INR1 billion.”

The fire had broken out in vacuum gas oil treating unit of the refinery. According to media reports, a statement issued by the company had said that there was no casualty or injuries of any kind.

Non-life insurance companies in India have welcomed action by the Competition Commission of India (CCI) to impose a heavy fine on 14 car makers indulging in restrictive practices which cost the insurers and vehicle owners heavily.

Last month, CCI levied a penalty of INR25.45 billion (US$422 million) on 14 car manufacturers for violating the competition law. It found that these car makers  pursued restrictive practices that prevent independent repairers coming into the market. It also directed the car companies to put in place an effective system to make the spare parts and diagnostic tools easily available through an efficient network.

“If more independent repairers come into the market and the component makers are able to sell to them at more competitive prices, then it is good for the vehicle owners as well as the general insurers,” Mr SS Gopalarathnam, managing director of Cholamandalam MS General Insurance, told the Indo-Asian News Service.

The car makers have also been directed to publish information regarding vehicle spare parts, retail prices, arrangements for availability over the counter, and details of matching quality alternatives, maintenance costs, provisions regarding warranty and any such other information which help consumer choice and facilitate fair competition in the market.

Separately, insurance companies complain that vehicles in India are designed in such a way that the car owner is forced to change the entire assembly than a small component, whenever there is a fault with the car.

Overseas the same companies follow the concept of “child parts”, that is, replacing the damaged or defective part and not the entire assembly whereas in India, many companies do not do so, according to insurance industry executives. Non-life insurers say that car makers have to take this into account while designing their vehicles, a measure which will also be environment friendly.

Non-life insurers are upbeat about the agricultural commodity market following proposed new rules by the Forward Markets Commission’s (FMC) requiring warehouse service providers (WSPs) to have full insurance cover for deliverable commodities on futures exchanges.

Insurance coverage for commodities currently accounts for less than 5% of the overall business of the non-life insurance sector. Experts say that if all WSPs took up insurance cover for crops, this might rise to 8% in the next six-eight months.

“Though banks providing finances to WSPs usually take up insurance cover to protect against losses, WSPs taking financial assistance from other private sources are not covered by insurance. With the regulator asking all WSPs to take full insurance cover, there could be an immediate rise of 15-20% in business, especially for state-owned insurers,” said a senior official with a public-sector insurer.

In draft guidelines issued last month, the FMC said that WSPs seeking accreditation with the National Multi Commodity Exchange would have to fully cover the value of goods at exchange-approved warehouses for risks such as fires, floods, cyclones, earthquakes, burglaries, thefts, etc, reported Business Standard.

The WSPs will also need fidelity guarantees and indemnity covers for all stocks deliverable on the exchange. The value of the goods to be insured would be marked-to-market on the replacement value, on an ongoing basis, the FMC said. It is seeking public feedback on the draft guidelines by 15 September.

“With the FMC asking WSPs to take insurance cover for their goods, there will be business opportunities for companies such as ours. Since there is always a risk of losing these commodities to fire, flood and other perils, the mandatory insurance will lead to additional opportunities for insurers,” said Mr Rakesh Jain, chief executive of Reliance General Insurance.

While both private and public-sector general insurers offer covers for commodities, the fidelity guarantee is a new growth area for insurers. In fidelity guarantee insurance, an insurer would indemnify the insured against a direct pecuniary loss due to fraud, etc. The size of the cover depends on the type of commodity being dealt with.

The Insurance Regulatory and Development Authority (IRDA) has given approval for general insurance companies to provide third-party motor cover for two-wheelers for three years instead of renewing the cover annually as is the current practice. The new measure could be replicated for four-wheeler and commercial vehicles.

IRDA said the new policy had been introduced following representation from various general insurance companies for long-term motor products, according to local media reports.

IRDA has also spelt out conditions for the new product. The regulator said that the total premium charged for the third-party coverage would be thrice the annual premium for two-wheelers as decided by the regulator. The entire premium would have to be made in one payment.

Insurers will not be able to revise the premiums during the three-year term of the policy. They will also not be allowed to cancel standalone third-party cover, except in the case of total loss where the premium for the unexpired period of the policy will have to be refunded.

IRDA said that insurers can also file a three-year term comprehensive policy for two-wheelers.

General insurers welcome the IRDA move. At present, getting insurance for two-wheelers at the time of purchase is mandatory. The problem arises from the second year onwards when owners often fail or forget to renew their vehicle insurance cover, according to industry players.

Health and motor insurance are likely to be introduced on India’s insurance repository system (IRS) by December. The move is expected to speed up the conversion of policies into electronic form.

“We are planning to roll out health and motor insurance on IRS by the end of this calender year. We expect these two general insurance segments to be the main volume driver for the insurance repositories,” Karvy Insurance Repository executive director, Mr Viiveck Verma, told Press Trust of India.

At present, only life insurance policies are stored by insurance repositories.

Mr Verma said that he expects the pace of converting insurance policies into electronic form to increase after the Insurance Regulatory and Development Authority (IRDA) makes e-insurance mandatory. “We expect the decision in another one year,” he said.

IRDA launched a pilot programme for two months from 1 July, in which it is mandatory for all life insurers to participate. In the pilot programme, each life insurer is to convert to electronic form a minimum of 1,000 or 5% of the existing individual policies (issued in hard form and currently in force), whichever is less, for each of the insurance repositories.

After the pilot scheme is over, the five insurance repositories, IRDA and the Life and General Insurance Councils, will together create a mechanism to promote insurance repositories in the country,” Mr Verma said.

Apart from Karvy, the other insurance repository companies are NSDL Database Management, Central Insurance Repository, SHCIL Projects, and CAMS Repository Services.

General insurers in India are planning to introduce a “base rate” system to price premium rates. The move is expected to arrest the rise in underwriting losses in the face of intense competition.

The General Insurance Council, which represents non-life insurance companies, discussed the idea last month at a meeting attended by the heads of New India Assurance, GIC Re, ICICI Lombard, HDFC Ergo and Tata AIG General Insurance, reported the Press Trust of India.

“We are in discussions to standardise best practices in underwriting property and health risks,” General Insurance Council secretary general, Mr R Chandrasekaran, said. He added that the move is to ensure that the risk is properly evaluated by general insurers and taken into account in pricing.

New India Assurance chairman and managing director , Mr G Srinivasan, said: “There is a feeling that premium rates in the domestic market are on the low side. Insurers have been discussing for some time how to ensure that the rates are at the right level and that there is some semblance of uniformity.

“At the July meeting, we had discussed how to bring the rates to the right level across the sectors, including health, motor and fire & engineering.”

“The Insurance Information Bureau is already trying to do it in the fire segment. Along similar lines, we want to have some kind of technical rates in the industry,” he added.

Fixing minimum rates could take insurers back to pre-2007 when tariffs were in force. Insurers have been slashing premium rates since 2007 when the Insurance Regulatory and Development Authority (IRDA) removed its fixed-tariff system for all business lines except for third-party motor insurance. De-tariffing allows insurers to price their products freely.

The Indian government has proposed that insurers will be held responsible for all the acts and omissions of their agents, and will have to face a penalty of up to INR10 million (US$164,000) for any violation.

The proposed measure is in new provisions inserted into an amendment Bill to revise the insurance law that would also raise the foreign investment limit in the insurance sector from 26% to 49%, reported the Times of India.

Many policyholders complain that the policy sold to them is not what was promised to them at the time of purchase. In many such instances, insurance companies would heap the blame on agents. Although there are provisions such as a free look-in period, and cancellation of the policy within 15 days, if the buyer is not satisfied, most consumers only realise the flaws in their policies much later.

The Bill, which proposes around 100 amendments to the insurance law, also seeks to allow an insurance company an option to contest any order passed by IRDa under section 33 of the Insurance Act in the Securities Appellate Tribunal. Earlier, insurance companies could not contest the order in any court. Section 33 deals with powers of investigation and inspection by the Insurance Regulatory and Development Authority (IRDA) and the subsequent penalising of insurers for any wrongdoing.

The government is slated to move the Bill, which has been delayed since 2008, in the upper house of Parliament today. Once it is passed by both Houses of Parliament and gets the President’s nod, it will become law.

Meanwhile, the All India Insurance Employees’ Association has raised serious objections to the government’s attempt to increase the foreign direct investment ceiling in the insurance sector, claiming that the move is against national interests.

AIIEA vice-president K.Venugopal said: “Since the crisis in 2008 the industrialised nations are experiencing stagnation in premium income. Therefore, it is natural for multinational companies to demand further opening up of the insurance sector in India, which, at the moment, is very promising.

“There may be people who argue that we will still have a majority 51% stake in the insurance sector. But, if an Indian stakeholder wants to sell around 5% of his stake to another Indian, then it’s the foreigners who will become the majority with a 49% share as two Indians will have a 46% and 5% stake in the company,” he said.

General insurance companies in India are giving a makeover to their health insurance plans by covering more than just hospitalisation expenses. They have designed comprehensive policies that will cover, besides hospitalisation reimbursement, pre-hospitalisation expenses such as out-patient department and wellness services.

The insurers are also providing additional features in health insurance policies such as worldwide emergency cover, disease-specific covers, value-added services in the form of discounts, health maintenance benefits and charges incurred in second-opinion consultations, reported the Hindu Business Line.

Mr Tapan Singhel, Managing Director and CEO of Bajaj Allianz General Insurance, said that conventional health insurance policies, especially the hospitalisation reimbursement category that exists in the market today, have been restrictive in terms of coverage.

After assessing the latent demand for all-inclusive health insurance covers, Bajaj Allianz recently launched a comprehensive health insurance plan providing coverage for hospitalisation treatment and also maternity, OPD and dental treatment.

CIGNA TTK, the newest standalone health insurer in India, plans to leverage the global health service expertise of US-based Cigna to focus on wellness-oriented health insurance products to differentiate its services, said Mr Sandeep Patel, the company’s Managing Director and CEO.

Other insurers have launched specialised disease-centric policies which will cover pre-existing diseases without any waiting period. For instance, Star Health Insurance’s Diabetes Safe Plan, covers complications from diabetes from Day One. Other health insurance policies in the market today generally have a waiting period of four years for covering pre-existing illnesses.

The health insurance sector in India is intensely competitive with 23 general insurance companies and five standalone health insurance companies.

General insurers have proposed to the government to allow them to issue compulsory third-party (CTP) motor cover, with limited liability. For the high-risk commercial vehicle segment, an option for additional liability limit covers is proposed, which will provide a sum over and above the basic motor policy.

Led by the industry body, the General Insurance Council, non-life insurers have sent a proposal to the Road Transport and Highways Ministry to consider TP covers with fixed limits, similar to the pre-determined liability limits for air and train accidents, reported Business Standard.

The implementation of this model will need an amendment to the Motor Vehicles Act which currently does not stipulate any limit on the liability of vehicle owners. Non-life insurers say due to this law, an increase in claim awards by courts is seen every year.

The implementation of this model will need an amendment to the Motor Vehicles Act which currently does not stipulate any limit on the liability of vehicle owners. Non-life insurers say due to this law, an increase in claim awards by courts is seen every year.

In the financial year ended 31 March 2013, general insurance companies incurred total claims of INRR176 billion (US$2.93 billion) in the motor segment, according to data released by the Insurance Information Bureau of India. “The commercial vehicle segment sees the highest losses and the most claims. If this segment’s TP liability is limited, it could lead to lower premiums for other categories,” said the chief executive of a small private general insurer.

In 2012-13, the total premium collected in the motor business segment stood at INR284.6 billion. Of the total claims, TP claims amounted to INR91.8 billion while ‘own-damage’ claims stood at INR84.2 billion.