News details

• Sep 10, 2014

Massive Insurance Claim Arises from Fire Incident at Bathinda Refinery

Insurance companies, including New India Assurance and General Insurance Corporation, are facing a potential hit of Rs 650 crore due to a fire incident at the Mittal-Hindustan Petroleum refinery in Bathinda. This claim surpasses the previous Rs 500 crore claim resulting from the 2011 terror attack on the Taj and Oberoi hotels in Mumbai. Unlike the previous claim, which was covered by the terrorism pool, insurers will be responsible for the damages caused by the fire. New India Assurance holds a 75% share in the policy, with other insurers such as United India and SBI General Insurance also involved. India's national reinsurer, GIC, serves as the lead reinsurer for the policy.

The Bathinda refinery had obtained insurance coverage of Rs 7,500 crore under a mega risk policy. Surveyors are currently assessing the loss incurred, and the claim is estimated to reach approximately Rs 650 crore. This incident marks one of the largest claims in recent times. While GIC has provided reinsurance and obtained protection against it, their exposure may reach up to Rs 100 crore. New India Assurance anticipates that their payout will not exceed Rs 50 crore. The mega risk policy, with a sum assured exceeding Rs 2,500 crore at a single location, is insured through a program involving several reinsurance companies.

The fire originated in the vacuum gas oil treating unit of the refinery, causing property damage and business interruption. Thankfully, no casualties or injuries were reported. Mega risk policies are commonly employed by refineries to safeguard their assets against losses, property damage, and business interruptions. In a similar incident a few years ago, a fire broke out at an Indian Oil Corporation plant near Jaipur, resulting in a limited claim of Rs 140 crore.

This incident is not expected to lead to an increase in premium costs for firms, as the incurred claim ratio for fire-related incidents has decreased from 96.78% to 68.82% in the 2012-2013 period. Although the fire insurance segment has become profitable, the non-life insurance industry as a whole is still grappling with losses. In 2012-2013, the industry recorded an underwriting loss of Rs 6,984 crore, which represents the claims paid to premiums earned.