Financial Daily from THE HINDU group of publications
Thursday, Jun 10, 2004
Corporate - New Projects
Money & Banking - General Insurance
ONGC may start its own insurance outfit
Mumbai, June 9
INSURANCE companies are about to lose their biggest client in the country. Oil and Natural Gas Corporation (ONGC) is planning a set-up of its own to take care of its insurance needs, a top ONGC official said.
"We have accepted a suggestion to set up our own insurance outfit since anyway we are paying huge premia to insure our assets," Mr Subir Raha, Chairman and Managing Director of ONGC, said.
United India Insurance Company pocketed the country's biggest insurance contract for the third consecutive year in February, offering to cover the oil explorer's offshore assets for a premium of $24.5 million. The previous year, ONGC had paid $51 million in insurance premium to United India Insurance, which acts as lead insurer but distributes the risk cover with a group of international re-insurers.
Mr Raha said the suggestion had come from Mr N. Rangachary, former head of the Insurance Regulatory and Development Authority and now advisor to ONGC on insurance.
"We could be setting up a subsidiary company. It is too premature to give a time-frame or investment, but I can say that we have decided to set up one (insurance company)," Mr Raha said.
ONGC's reasoning is that anyway it ends up shelling out millions every year to insurance companies. Instead, it could set aside money in an insurance reserve, which would then act as cover for it assets. If there are no claims, the company can write back money from the reserve.
Even though, ONGC is planning the set-up as an in-house insurance provider, it is not averse to covering assets outside the company too. "It could be done. Even though we have not yet firmed up anything, insuring others could be on the cards," Mr Raha said.
He also said that the company might also think of joining hands with a partner. "The structure of the outfit is yet undecided. We could have a partner in which case the company may turn out to be a joint venture," he said.
Until a couple of years ago, ONGC used to get a comprehensive cover for both its offshore and onshore operations. In 2003-04 it separated risk covers for its offshore and onshore activities, consequently reducing its premium by negotiating Indian tariff for onshore risk.
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