Financial Daily from THE HINDU group of publications
Tuesday, Apr 12, 2005
Money & Banking - General Insurance
New norms for marine insurance schemes IRDA dashes shipping cos' hopes to cut cost
Mumbai , April 11
THE new guidelines issued by the Insurance Regulatory and Development Authority (IRDA) for war risk and marine hull insurance schemes have shattered shipping companies' hopes to gain from lower insurance cost in the current fiscal.
These two important marine insurance schemes have been freed from the administrative tariff regime, since January 2005 for war risk and April 1, for marine hull. This implies, shipping companies, which were covered by the tariff schemes for several years, have the freedom to bargain premium and insure their fleet with any Indian insurance company - public or private.
However, the post-deregulation guidelines issued by IRDA have retained the existing terms and conditions for both schemes, thereby leaving little scope for negotiation for shipping companies.
The IRDA guidelines dated March 23, stated "All general insurers who wish to write marine hull class of business which will go out of tariff from 1.4.2005 as per the TAC circular, shall follow the existing policy wordings, terms and conditions including clauses such as the institute clause till further orders. On the other hand, terms & conditions for the war risk insurance policy shall be identical to the existing Government of India scheme until further orders."
Although this can be amended by IRDA later, shippers say that the timing is pertinent as insurance deals are usually closed between April and July. "Unless IRDA modifies this before July, our insurance costs will be hit for this year for certain," said a ship owner.
According to shipping companies, since insurers will have to follow the existing terms and conditions, they may not be in a position to offer market related competitive premium. Now, in the case of war risk insurance, the existing scheme provides for a maximum claim amount of Rs 10 crore irrespective of the value of the ship, said a shipping company official.
Shipping companies have decided to approach IRDA seeking amendments to its guidelines. It is alleged that IRDA has decided to retain the existing terms and conditions under pressure from PSU insurance companies which have been opposing the move to de-tariff marine insurance schemes.
A shipping source said there have been talks about a five per cent drop in insurance premium immediately after the announcement of the Government decision to de-tariff hull and machinery schemes. PSU insurers, who were asking for a level playing field and want free pricing to be introduced simultaneously for all regulated insurance schemes, are not prepared to compete in the open market immediately.
According to shipping companies, as of now, their insurance cost has been 25-30 per cent higher as compared to that of their competitors abroad. "In the international market, we can get a discount of at least 30 per cent over the rate being charged by the Indian companies," said a shipping company official.
Insurance cost of Indian companies, based on the current value of ships, vary between 10 per cent and 20 per cent of their total operational cost, he said.
Marine hull and machinery insurance business in India is estimated to be around Rs 350-400 crore annually.
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