Indian Oil renews Rs 4.52L-cr mega insurance with New India Assurance

State-run Indian Oil Corp has awarded its mega insurance policy for a Rs 4.52-lakh crore cover to the largest state-owned non-life insurer, New India Assurance for the ninth consecutive year.

New India Assurance has been backed by US reinsurer Chubb in this mega insurance deal for the country’s biggest fuel retailer by value, customer touch points and capacity. The policy will be renewed for another year effective October 1.

Talking to Bizz Buzz, Prabodh Thakker, Chairman, Global Insurance, said, “Indian Oil is always a well governed company. Similarly, New India Assurance is also a quality, transparent and a company with biggest capacity in the region especially risk and size of the type, naturally New India is the choice.” It hardly matters if the same insurer has got such a big account for the ninth year in a row as it is a normal industry practice. I don't see anything wrong in the deal, he added.

Indian Oil had opened a tendering process for this annual policy in July where a dozen public and private sector insurance companies had sent in expressions of interest. But after more than two months of waiting and numerous letters seeking a timeline for completion of the process, insurance companies were verbally told the tender process has been scrapped.

Later, on September 20, Indian Oil issued a letter of award renewing its policy with New India “On the same terms and conditions as per the tender terms” at an increased premium of Rs 292 crore, up from the Rs 253 crore the company paid last year.

On Thursday last, insurance broker India Insure, which was hired by United India Insurance to engage with Indian Oil on pricing and underwriting capacity, wrote to the Ministry of Petroleum and Natural Gas seeking a new tender.

The policy covers all Indian Oil assets including pipelines, pumps, storage tanks and distribution network and is considered prestigious in the insurance industry because of the size and scope of the client. The fuel retailer has more than 60,000 customer touch-points, 70.05 MMTPA of refining capacity and more than 17,000 KM of cross country pipelines.

As per the industry sources, last year, the New India-Chubb combine offered a 2.25 per cent post tender discount to offer a premium of Rs 253.30 crore, beating United India’s tendered price of Rs 256.85 crore on the total sum assured of Rs 4.03 lakh crore.

Indian Oil, insurance executives said they argued that the policy has been renewed since the total claims are below the 60 per cent threshold set by the tender document last year. Interestingly, the new policy has a so-called swing clause that allows the reinsurers to charge an extra premium in case claims increase beyond 60 per cent.

Also, this year New India has foregone its ceding commission, the amount it receives from brokers as a fee for taking reinsurance companies on board. Even after excluding Russian risk, the project still needs a cover of Rs 30,300 crore. Sanctions against Russia have compounded the impasse, involving New India and national reinsurer General Insurance Corp, on the pricing of the policy for this plant.

A Rs 43,200 crore insurance cover for the Russian-made Kudankulam nuclear power plant is in limbo as state-run New India Assurance, the lowest bidder for the power producer's units 3 and 4, has not found a reinsurer. Global majors aren't keen to underwrite the Russian component of the project due to the West's sanctions against Moscow.