Mumbai: High premium rates for companies buying insurance covers for their plants, machinery, and properties are here to stay, as the Delhi High Court has dismissed a petition of pharma majors — Cadila Healthcare, Wockhardt, Biocon and Lupin — against the new rates of state owned reinsurer, General Insurance Corporation of India (GIC Re).
Justice Vibhu Bakhru of the Delhi High Court, while dismissing the petition of pharma companies last month, said that “Plainly, it would not be permissible for this court to supplant its opinion regarding quantum of premium that ought to be charged by GIC. GIC is fully entitled to determine the rates at which it offers re-insurance in respect of risks covered by various insurance companies.”
GIC Re, the country’s largest reinsurer, passed an endorsement via circulars on February 12 and 21, stating that insurers wanting to utilise its treaty (an arrangement where capital is pooled by various reinsurers to provide reinsurance support to insurance companies) will have to quote higher premium rates effective March 1 for providing covers to companies in eight sectors that were reporting high claims.
The sectors were those engaged in manufacturing rubber goods, plastics, textiles, chemical manufacturing below 32 degrees centigrade flashpoint, transporters’ godowns, steel plants and thermal power plants. The new rates were based on claims data with the Insurance Information Bureau, an insurance data repository. As per the circular from GIC Re, all non-life insurance companies were told to add the cost of procurement/management costs to the IIB-identified rates and then quote accordingly to their corporate clients. As a result, companies saw a three- to nine-fold rise in their insurance cost.
A petition was filed by top companies engaged in manufacturing and distributing of pharmaceuticals, seeking a judicial review into the quantum of the premium fixed by GIC Re for providing reinsurance to various insurance companies. Since the controversy involved in the petitions filed by several top pharma companies was common, the petitions were heard together.
The companies were aggrieved by the steep rise in the insurance premium. For instance, the petition from Wockhardt Limited said that it had bought an annual insurance policy from private insurer Future Generali India Insurance Company Limited paying a premium of Rs 1.32 crore. However, on account of the impugned circulars issued by GIC Re, the said premium has increased steeply from Rs 1.32 crore to Rs 5.83 crore, excluding GST. The counsel appearing for the pharma companies argued that the GIC circulars insisting upon the premium to be charged by insurers curtailed the freedom of the insurers to charge insurance premium as per their discretion, and was unfair exercise of the dominance enjoyed by GIC Re.
However the court, in its order dated April 12, noted that insurance companies are required to mandatorily re-insure only 5 per cent of the risk covered by them and “the premise that GIC had fixed the insurance premium chargeable by various general insurance companies, is erroneous and the petitioners challenge founded on this premise must necessarily fail.”
The non-life insurance sector was de-tariffed in 2007, after which insurers competed with each other on rates to gain market share but this resulted in underwriting losses. However, corporates, on the other hand, were able to enjoy low rates for more than a decade. According to brokers, insurers offered 80 to 99 per cent discount to corporate clients on the erstwhile tariff rates for FLEXA covers (policy covering fire, lightning explosion/implosion and aircraft insurance) while charging some premium for providing cover for natural catastrophes.
