The Telegraph
Since 1st March, 1999
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Airlines, cargo ships brace for higher war risk premia

New Delhi, Jan. 30: The continued US-Iraq stand off and the fear of an impending war have alarmed insurance companies, many of which are considering an increase in aviation and marine insurance premia.

“Insurance premiums are likely to rise for marine hull and cargo. It will heavily impact the aviation industry as well. Various airlines may be instructed by reinsurers to stop flying to the Gulf region; otherwise they may just cancel the cover,” says N.K. Sinha, general manager of Global Reinsurance Services, a reinsurance broker.

A senior official from the aviation industry said, “The insurance premium may go up by 30-35 per cent during the war in the case of airlines flying in high risk zones.”

Currently, the rate of marine cargo is 0.05 per cent on the cargo value or cost, insurance and freight (CIF).

However, the insurers claim that the rates for both marine hull and aviation are completely reinsurance market driven. The rates are decided by the war and SRCC (strike, riot and civil commotion) committee in London. The rate for marine cargo has already jumped by almost 100 per cent from 0.0275 per cent of the cargo value to 0.05 per cent after the Kargil war.

Insurers are already spooked by the prospect of a Gulf war. “I have already started refusing shipment proposals to Iran and Iraq. As a private insurer who is new in the business, we need to use prudence to decide which flags our vessels should carry,” said one private insurer.

He added the risk factors which need to be meticulously calculated in such kinds of shipment includes the route on which the ship will travel, duration of the transit, mid-way transhipment, if any, and the number of ports that the ship touches.

The insurer adds, “There is a built-in clause in the marine insurance policy that entitles the insurer to cancel the war cover of his client by giving him a seven-day notice period. But this can be only done if a war is openly declared.”

The marine and aviation insurance policies normally covers two kinds of risks: the first covers property in case of an accident and the other clause covers war. Sinha said, “Since both marine and aviation covers are big and risky, the insured prefers to take out cover for both risks.”

Sinha said, “The same underwriters can charge different rates for different airlines in the case of war.”

Speaking to The Telegraph, P. Ramanujam, managing director of General Insurance Corporation said, “Both aviation and marine insurance are high profile businesses. In case of aviation, we retain only 2.5-5 per cent of the total premium and the rest is distributed to other reinsurers. But in the case of marine insurance, our retention capacity is 60-70 per cent of the entire portfolio.” He added, “If a war breaks out, we will immediately stop insuring or accepting any shipment or aviation proposals to war- prone region.”

Ramanujam said, “Due to the vast risks, GIC in most cases retains less than 1 per cent risk in the aviation sector.” In 2001-02, when GIC earned a total premium of about Rs 2,671 crore, the aviation premium retained by it only touched Rs 24.41 crore. It was, however, higher than the Rs 7.26 crore aviation risk premia retained in fiscal 2000-01.

On the other hand, the reinsurer retained marine premium worth Rs 207.59 crore in 2001-02 against Rs 226.75 crore in the previous year. This, however, indicates that there was a fall in marine business.

According to figures available from the directorate general of central intelligence and statistics (DGCIS), Indian imports from Iraq during the period April-October 2002 amounted to Rs 11.39 lakh against Rs 6.49 lakh the previous year. However, exports to Iraq touched Rs 754.81 crore against Rs 437.16 crore during the same period.

India’s export items to Iraq include tea, cotton yarn fabric, electronic goods, primary and semi-finished iron and steel, transport equipment, pharmaceuticals, non-ferrous metals and fine chemicals. India only imports metalliferous ores and metal scrap from Iraq.

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