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Wednesday, Dec 21, 2005


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Non-life insurers hard-selling liability covers to corporates

C. Shivkumar

Aon Global Insurance Services and Howden Insurance Brokers have operations here.

Bangalore , Dec. 20

NON-LIFE insurers are on an overdrive to sell liability covers to corporates racing to conform to the capital market regulator's guidelines on corporate governance and preparing to tap the international capital market.

Sources said the liability covers sold included Directors and Officers (D&O) liability covers and Errors and Omissions covers. Under Clause 49 of the Listing Agreement, corporates are expected to appoint independent directors on their boards by the end of this month. In addition, several corporates have planned overseas equity listing, either on Nasdaq or on the New York Stock Exchange next year.

The sources said D&O covers were hawked mostly by private sector general insurers. Public sector insurer presence in this market was restricted. Approximately Rs 70 crore of premiums had been collected so far, the sources added. Larrge corporates such as Infosys, ICICI, Tata Motors and HDFC have taken liability risk covers so far.

Large global insurance brokerages are bullish on the liability covers market in India.This is evident from the series of high profile visits by large international insurance brokerages, including Aon Global Insurance Services Ltd and Howden Insurance Brokers. Both these entities have operations in the country.

The Chief Executive of the Hyperion Insurance Group and founder of the Howden Insurance Brokers, Mr David P. Howden, told Business Line, "There is large opportunity for liability risk covers in India."

Premium collections could rise to Rs 500 crore if the Securities and Exchange Board of India (SEBI) does not extend the deadline, the sources estimated. This is because even mid-size corporates that have no intention of tapping the global capital market are likely to take D&O or E&O covers.

According to AON Global's Executive Vice-President, Mr Andrew Clark, "Globalisation is likely to expose Indian corporates to a highly litigious environment. Liability products will help mitigate such risks." Therefore, even the small corporates are beginning to take safeguards against potential legal risks from either regulator or shareholder actions or even customer/importer actions.

However, the sources said, such liability covers were mostly ceded to cross-border re-insurers. The reason: domestic retention capacity for covering liability risks is limited.

The private sector has little capacity for retention of these risks, given their low capitalisation. Consequently, almost all the private sector preferred placing the risks with the global reinsurance companies. In fact, the sources said, domestic private sector non-life insurers were "fronting" for foreign reinsurers. This implied that the domestic insurers were collecting the premiums on behalf of global insurers wanting a slice of the growing liabilities insurance market.

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