Context:
From April 1, premiums for terrorism risk insurance are expected to drop by 10-15%. This move comes as state-owned reinsurer GIC Re reduces rates for the terrorism risk insurance pool.
Background
- After international reinsurers withdrew terrorism risk capacity following the 9/11 attacks in 2001, India established a terrorism risk insurance pool on April 1, 2002, administered by GIC Re.
- All non-life insurance companies in India are part of this pool.
- The pool covers terrorism risk under property insurance policies, including residential dwellings and fixed assets.
Pool Structure and Limits
- Initial indemnity limit: ₹200 crore per location.
- Current limit: Increased to ₹2,000 crore per location.
Reason for Rate Reduction
- The premium rates are periodically reviewed based on claims experience, reinsurance costs, and pool expenses.
- No major terrorism-related claims have occurred in India since the 2008 Mumbai attacks.
- Rates had remained unchanged since April 1, 2014, prompting the revision.
Pool Financials (FY24)
- Premium income: ₹1,654.63 crore (down from ₹1,809.01 crore in FY23).
- Claims paid: Only ₹3.12 crore due to the absence of major losses.
Impact on Customers and Corporates
- The premium cut will benefit businesses and individuals purchasing property insurance with terrorism coverage.
- However, large corporates may still opt for terrorism risk coverage from international reinsurance markets, making the rate change less impactful for them.
Regulatory Approval
- The Insurance Regulatory and Development Authority of India (IRDAI) has approved the rate revision.
- The revised rates are inclusive of up to 5% brokerage/agency commission on terrorism premiums.
After a decade of stable rates and low claims, GIC Re’s terrorism risk insurance premium reduction reflects a low-claim environment, benefiting policyholders with reduced costs while strengthening the market’s competitive edge.
Source: BS
