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IFC Helps Indian Insurance Buyers Gear Up for a Detariffed Regime


At a recent IFC-organized workshop in Delhi, the focus was on helping insurance buyers in India cope with a de-regulated non-life insurance sector beginning in 2007. The workshop underscored how a responsible corporation should identify and address risk management issues and translate these into a comprehensive and well-structured insurance program that minimizes the overall cost of doing business.

Decision makers including Chief Financial Officers, Directors of Finance and General Managers (Finance) from leading manufacturers in agribusiness, tires, paper, pharma sectors and large infrastructure players (oil/hydro power companies, transmission players, port management players) attended the workshop.

Following introductory comments by Colin Warren, Portfolio Manager, IFC – South Asia, Jan Mumenthaler, Senior Insurance Officer, IFC, led the workshop, including important themes covered by insurance industry leaders and Robin Sandenburgh, Principal Environment Specialist at IFC Delhi.

Topics covered included effective insurance buying, corporate insurance solutions, use of insurance as a risk management tool, business interruption cover, liability developments in emerging markets, the role of the insurance broker, environmental health and safety management and its impact on insurance needs, and climate change and the insurance market.

India opened up its insurance sector in 1999 but allows only 26 percent foreign holding in a venture. The insurance industry wants the FDI cap to rise to 49 percent so that it can bring in more capital but the idea is a subject of much debate.
The industry continues to be highly regulated, with around 70% of premiums still coming from products subject to price and policy controls (i.e. prescriptions on what coverages different policies can offer). This is set to change in January 2007, when controls will be lifted in the non-life insurance sector, directly impacting IFC clients that buy asset, business interruption, liability and motor coverage.

Underlining the importance of better risk management through insurance, Mr. Mumenthaler said, "A better insured country attracts more foreign investment. The insurance penetration in India is still lower than other countries," adding that consumers and companies needed the option of buying cover at a competitive price. He explained that the effects of detariffing will vary by market segment, with premia for fire and engineering risks likely to fall and those in the currently loss-making motor insurance segment expected to rise.



The risk management session introduced best practices in the area of corporate insurance and gave useful tips that can be practiced in today's Indian market. The session helped explore avenues for companies considering international expansion.

The workshop highlighted that studies have shown that the lack of Business Interruption insurance is a major reason for companies not surviving a serious loss. It is interesting to note that 50% of all businesses that experience a serious loss never reopen their doors, and more than 25% of those that do close within three years.

Climate change is already having a major impact on insurance companies and the insurance market is at the forefront of adapting to this challenge. The growing impact of climate change and insurance led to an interesting discussion on floods in Mumbai and other parts of India. Mr. Mumenthaler explained, "Recent floods in several Indian states damaged assets worth more than $400m according to preliminary estimates. The overall economic loss including that of assets and lives not insured will be much higher."
    In her session, Robin Sandenburgh provided an overview of environmental and social risks faced by the private sector, as well as liabilities that may result from these risks.

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