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NTPC takes megarisk insurance cover -- Total value likely to be over Rs 20,000 crore

C. Shivkumar

BANGALORE, April 9

NATIONAL Thermal Power Corporation Ltd (NTPC) has taken a megarisk insurance cover for all its thermal and gas power-based projects.

The insurance covers includes all kinds of risks including loss of profitability on certain projects. NTPC is the first public sector company in the country to take this kind of a policy. The only other Indian corporate with such a policy is the Reliance group covering its petrochemical units in the country.

Speaking to Business Line, Mr K.N. Bhandari, Chairman and Managing Director of New India Assurance Ltd, said, ``This risk will cover certain cash flow risks as well.'' Asked if this risk cover would also include payment defaults by some of the States to NTPC, he said this arrangement was a credit risk and would not be part of the insurance risks.

Sources however indicated that the total value of the cover would be in excess of Rs 20,000 crore. The entire insurance has been done on a reinstatement basis, which would imply that in the event of claims being made, settlement would have to be done on the basis of prevailing replacement cost of assets.

The total premium for this kind of a risk is in the region of about Rs 100 crore. The risk cover is being shared by the four public sector insurance companies. Accordingly, the bulk of the premium receipts would be for New Insurance, which is estimated t o be in the region of about Rs 35 crore.

The remaining Rs 65 crore is being shared equally by the three other public sector companies -- United India Insurance, Oriental Insurance and National Insurance. Since, the cover involved is a large amount, over 90 per cent would have to be reinsured ab road, with some of the major reinsurance companies of the world. These include Munich Re and Swiss Re.

Consequently only about 10 per cent of the premiuma are likely to be retained in the country they said. But reinsurance eliminates risks for the domestic insurance companies in the event of the claims being made. In such an event, the claims would have t o be borne proportionately by the reinsurer. But NTPC has so far had a history of not making large claims from any of the insurance companies and consequently has also enjoyed discounts from both the insurers and the reinsurers.

So far NTPC has been taken insurance cover only on individual plants, consequently the premium outgo on a reinstatement basis tended to be high. A mega insurance cover has reduced premium costs substantially. This would in turn have substantial impact o n power tariffs, since insurance is treated as part of the fixed cost component in current pattern of two part tariffs.

As far as the insurance companies, are concerned the benefit for them is that such a mega risk cover helps in reducing administrative costs considerably. At the same time it also allows them to create a large premium base and an equally substantial inves tible corpus.