National Frets Over Risky Cover To Reliance Info

[city02 63]

http://economictimes.indiatimes.com/articleshow/751841.cms

MAYUR SHETTY

MUMBAI: National Insurance has hit the panic button on its insurance cover to Reliance Infocomm. The Kolkata-based insurance company had issued a three-year policy to Reliance Infocomm covering mobile subscribers’ default liability risk, which includes a cover for the instrument as well as bill defaults. The insurer had received a premium of Rs 45 crore for a three-year period from June ’03.

Within the first year, claims amounting to Rs 25 crore have been reported. The company now fears that claims may exceed the expected range and go far beyond the premium of Rs 45 crore well before the three-year period.

The sum assured per handset is Rs 11,000 for a black and white handset and Rs 24,000 for premium handsets. This represents the combined maximum liability in respect of the loss of the handset and payment defaults on the part of the handset user. The premium for these handsets was Rs 92 and Rs 140 respectively.

Fearing a ballooning of claims liability, the insurer is now looking at staggering the claims liability over a four-year period through an alternative risk transfer (ART) method.

The company settled for an ART cover after discovering that re-insurance cover was not feasible since the contract had already been finalised. The ART cover has been offered by Imagine Reinsurance, a Bermuda-based firm through KM Dastur Reinsurance Brokers, Mumbai. The cost of the ART cover works out to around $2.8m.

The difference between ART and re-insurance is that while reinsurance removes the risk of large losses from the insurer’s balance sheet, ART helps in spreading any excess loss over a period of years and smoothens the impact. However, in ART, all the claims are absorbed by the insurer in addition to the premium payable.

Unlike in some developed markets, there is no institutional mechanism for assessing creditworthiness of an individual. Besides, Reliance had resorted to some very unconventional methods for marketing its mobile schemes. These included the hugely popular ‘Monsoon Hangama’ where the handset and connection were provided at an upfront payment of Rs 501. Given this background, National’s pricing for credit insurance appears to be a shot in the dark, industry experts say.

Industry sources say that the company agreed to underwrite this business as part of its gameplan to become the number one player in India. By providing the cover to Reliance Infocomm, National managed to get a larger chunk of business from Reliance Industries — the biggest non-life customer in India. The company has received a total premium income of Rs 168 crore from the group in ‘03-04.

The insurer is now trying to find out if there is any legal way of avoiding further liability and if possible, get out of the contract. It is not known whether the ‘thirty day cancellation clause’, which is a standard in most open policies, is a part of the contract. Since the liability has been frozen for a three-year period, the insurer is not in a position to revise rates. However, it is still examining its options to raise additional premium.

[AmanJ 1]

but why is RIL evil B O R E D ???

they got themselves insured before starting their service from National, and i m sure that they would'nt have forced National to get themselves insured and now National is crying, they took it as a business opportunity but r loosing in the deal so RIL is nowhere to be blamed

[city02 63]

I agree - National's greed overshadowed their risk assesment and now they are crying over spilt milk.

No one forced National to issue the policy in the first place.

RIC are very good negotiators also.

Insurance companies can't have their cake and eat it too - just because claims exceed premiums paid, does not imply some sort contractual/legal problem.

They made a bet, and they lost - boo hoo.

If they want no losses, they should also fork over any gains to the policyholders.