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Interaction | March 2016

Growth of project insurance is linked to investment plans in infrastructure

G Srinivasan CMD, New India Assurance

What is your observation on power sector? How difficult is the sector when it comes to insurance?

With the new initiatives being taken by the Government, it is expected that the sector will see phenomenal growth. The power sector needs a specialised underwriting knowledge because of some peculiarities associated with it. New India being market leader, over the years have gained expertise in the underwriting of such risk. Project insurance policies are all risk cover policy where only exclusions are defined. Major risks which are covered includes: fire, lightning, explosions, collapse, acts of god perils such as flood, inundation, earthquake

What impact has the pause in gas-based power projects had on your business?
This has created a challenge to continue the coverage. Insured due to such delays are unwilling to pay the agreed premium and are looking for the reduction in the premium during such idle period. Since such situation has never been seen in the past, underwriters are struggling to find a solution for this problem.

How was the growth of assurance business in the sector this year?
We have insured 10 power projects as a leader in the first three years of 12th Five Year Plan. But, industries growth in project segment was negative during the period 2014-15. Delays and postponements of projects to a certain extent have not allowed the project insurance market to grow. However, growth of project insurance is directly linked to investment plans in the infrastructure projects.

Investment in power infrastructure is expected to lead to a huge demand for project insurance. Will we see traction in this space?
The power sector along with transmission and distribution (T&D) network will be the driving force during this period. With planned capacity addition of 88.5 GW during the period 2012-17, this will certainly provide an expected boom for this segment

Which power sector segments are the major risk covered components that must be insured and why?
Power generation, transmission and distributions are core components; but most crucial are the generation units which must be insured because they carry very high values concentration and are more exposed to major perils like fire and explosions.

Would it be right to say that unlike project finance, project insurance does not appear to have got recognition?
Every project which is financed will ultimately require insurance. However the general perception that insurance comes at last is also true because insurers usually are not called for association since conception stage of any project but are called only at last stage. This has to change and insurers should be involved right from the beginning.

As a PSU do you think private companies pose stiff competition in the project insurance market?
Not now, but in future when they gain sufficient experience and increase their capacity, they may pose a challenge.

Since most such projects are implemented by governments, do PSU insurers have an advantage?
No, because there is no such regulation that they have to get insurance form PSU only, instead they can approach any IRDA approved general insurance company. However, they prefer us because of our financial strength, international -¦A-¦ rating and expertise.

Are there more risks in insuring projects in India due to uncertainties like delays and lack of policies?
Exposure of insurance companies due to delay of the project gets increased and getting reinsurance support for mega projects due to such delays create difficulties

Do you feel contractors and promoters are avoiding insurance to rein in project costs?
No, because major projects are directly being controlled by principals/lenders. Hence contractors have little role as far as insurance is concerned.

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