NIC TO HIKE PREMIUM FOR DIRECTORS’ RISK POLICIES

Kolkata: Faced by a rising demand for Directors and Officers (D&O) liability policies after the Satyam scam, the National Insurance Company Ltd is looking at increasing the premium rate by over 30 per cent, according to NIC sources. The public sector insurer may also formulate more restrictive clauses for D&O, for example, exclusion of all claims in case of criminal offence by the directors, a senior NIC official told Business Line.

D&O liability policies offer cover against any loss or defence-cost that an organisation may incur on account of mistaken actions taken by the directors and officers in pursuance of their duties.

Satyam, an eye-opener
“The Satyam incident has been an eye-opener for us in considering formulation of more restrictive clauses and restructuring the premium pricing of liability policies,” he said. The decision has also been influenced by an overall lack of confidence on corporate governance affairs , he added.

The decision to increase premium has also been influenced by an overall lack of confidence on corporate governance affairs after the recent scam, he pointed out. The annual premium on liability policies varies between 0.15 to and 0.30 per cent of the indemnity limit depending upon the risk attached to a company. After the hike in premium, it may range anywhere between 0.2 and to 0.6 per cent of the risk cover, he said.

NIC’s premium income from liability insurance constitutes a mere 2 two per cent of its total premium income. The concept was introduced in the country only in the last two-three years and is yet to be tapped significantly. The total premium collection by the general insurance industry in the countryIndia till October, 2008 from liability policies was to the tune of Rs 386 crore, of which NIC collected over Rs 25 crore. The segment has been growing year on year at over 30 per cent for the industry, according to IRDA data.

“There is a huge growth opportunity in the D&O liability segment, particularly in the current volatile economic conditions. We, however, need to price the product optimally as the downturn also attaches higher risk of litigation against executives,” the officer said.

Source: The Hindu Business Line