Terrorism Risk Insurance Premiums Set to Fall in India

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