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Kathmandu Tuesday December 11, 2001 Marga 26, 2058.
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Footing the bill
As insurance companies and Lloyd’s
underwriters cannot withstand the size of losses
likely to occur as a result of war, terrorism etc, they generally exclude such risks from
their coverage and even if the risk of terrorism etc is covered, the scope of cover
depends on the availability of reinsurance support.
For example, following a bomb incident in London
in April 1992 in St Mary Axe, it became apparent that reinsurers would withdraw cover for
damage caused by terrorists from January 1, 1993. This affected all composite insurers
cover and discussions were held to resolve the problem. However, the reinsurers
nevertheless withdrew their support to the insurers. In 1993 however, after giving a
careful thought to the 1992 incident, the British government agreed to participate in an
insurance pool providing relief to the insuring public.
Closer home, following the riots in 1984, the
Sri Lankan insurers faced a similar situation when their reinsurers backed out. As a
result the market was left without insurance protection against the risk of riot etc. In
order to defuse the situation the Sri Lankan Government stepped in and established a pool
to insure the risks excluded by the reinsurers.
After the Nepalese government declared the
Maoists as terrorist and imposed a state of emergency, the risk perception of
international reinsurers heightened vis-a-vis the deteriorating security condition in the
country, and this prompted reinsurers to withdraw their support to local insurers, thereby
creating a situation in the country similar to the one which was faced by the British
insurers in 1992-93.
It may have seemed to many that the Nepalese
insurers were reluctant to shoulder their responsibility at the time of crisis, but
without adequate reinsurance support insurance industry cannot simply foot the bill for
loss and damages caused by terrorism and if the international reinsurers are unwilling to
provide protection, then the government must step in and extend its cooperation to the
Nepalese insurance companies, if it wants to restore the confidence of domestic insurers
as well as international reinsurers.
Though, for now it seems that the current stand
off has been diffused but for the interest of everyone involved and as a longer term
strategy the government must seriously consider the proposal to set up an insurance pool.
It is evident that if the law and order situation deteriorates further, the reinsurers
might again withdraw their support creating chaos in the insurance market. Further, the
regulatory body must also set aside a fund currently generated by levying 1 percent
service charge on insurers’ gross premium collection, so that when there is a reduced
capacity in the market for certain risks, they are able to protect the interest of the
insuring public.
Ajaindra Singh
ACII, Kathmandu |
