Mumbai floods: Made insurers run for cover

GIC'S REINSURANCE UMBRELLA

Coverage area Risk Cover Limit Catastrophic Peril Cover Rs 850 crore Earthquake Peril Protection Rs 750 crore Marine Hull Cover Rs 250 crore Terrorism Pool Rs 500 crore War Exposure Rs 400 crore

(Source: GIC 2004-05)

That reinsurance is a must for every insurance company was borne out during the July 26 and 27 floods in Mumbai. The four state-owned non-life (general) insurance firms have been hit with some Rs 2,400 crore in claims. In the US, insurers transfer as much as 60 per cent of their risks to reinsurers; in India, the corresponding figure is around 4-5 per cent. General Insurance Corporation (GIC) of India is the biggest reinsurer (a natural, given that its four subsidiaries once enjoyed a monopoly over the non-life insurance business in India) in the market. Foreign companies are allowed to own a 26 per cent stake in their reinsurance ventures in India (just as they can in life and non-life insurance ventures); however, most reinsurance majors (think Swiss Re, Munich Re, and Lloyd's) have been content to reinsure business in India out of their offices in other parts of the world. And the Indian non-life firms have not felt the need to reinsure their retail business (although July 26 and 27 should make them rethink that). "We reinsure more in the wholesale business whereas the retail business is not reinsured that much," says Sandeep Bakhshi, MD, ICICI Lombard. One reason for this is that risk retention levels in India have traditionally been high (over 90 per cent of the premium is retained). That can be seen as a sign of over-confidence. Or it could be testament to the superior underwriting skills of Indian general insurance firms.

Regulatory changes could help the cause of reinsurance. Right now, any private sector insurance firm wishing to reinsure business has to first approach GIC. "The first right is always with GIC," says Shrirang Samant, MD, HDFC Chubb. Although he adds that companies such as his have no problems dealing with GIC or with foreign reinsurers operating out of India, a change in this rule could see more activity on the reinsurance front in India (the foreign reinsurers could get aggressive, for instance). Even without that, 2006 could see some activity; most reinsurance renewals are due in April of the year. There is also a chance that reinsurance rates could move North in areas such as household and motor policies.