A Subsidised Cover

[Chirag 5]

No wonder Reliance can afford to forget all those handsets procured through forged documents.. We knew it were insured, but Reliance got it done practically for free!! Read below!!

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A subsidised cover

Freny Patel | May 08, 2004

Rediff.com

For Nestle, the Swiss foods multinational it was a great bargain. A few months ago Nestle struck a deal with a private sector insurance company to renew its marine insurance -- for a mere Re 1.

How did it get such a fantastic deal? Quite simply because the Rs 2,000-crore (Rs 20 billion) Nestle also insured its plants and premises against fire and other risks worth over Rs 1 crore (Rs 10 million), all from the same leading private sector insurance company.

Last year, National Insurance Company had only a five per cent share of Reliance Industries' Rs 40,000-crore (Rs 400 billion) insurance cover. This year it has zoomed to 30 per cent. How was this spectacular coup pulled off? For a larger share of a more profitable business, National Insurance agreed to underwrite the risk cover of Reliance Infocomm's cellular phones.

Competition is changing the face of the Indian insurance industry. With competitive pressures in the estimated Rs 15,673-crore (Rs 156.73 billion) non-life insurance industry, as many as 12 players are vying for the same corporate pie.

No wonder then, freebies and huge discounts, once the sole purview of the fast moving consumer goods industry, are being adopted by insurance players as well. So much so, that to bag corporate accounts, many insurance companies are subsidising some covers so heavily that they are practically free.

In fact, like in banking, cross-subsidisation is also the new buzzword in the insurance sector. Insurance players are subsidising non-tariff, unprofitable businesses by writing profitable fixed-priced (tariff) portfolios of the same company. Today, regulations permit cross subsidisation.

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