The Curious case of Underwriting Petrochemical plants as Chemical plants


It is interesting to recall that few years back  due to unhealthy competition, companies were rating  chemical plants, using solvents with flash point below 32 degree C, at 99% discount on flexa rates and the premium was reduced to  minimum nat cat rates 

During this period, many petrochemical plants declared themselves  as chemical plants  and were rated as chemical plants based on inspection reports where it was highlighted that even though the plant is processing hydrocarbons falling under category A and B,  the value of such plants is below 35% of total plant sum insured. Hence they do fall under the scope of petrochemical tariff.  Basic purpose was to enjoy reduced BI time excess 7 days in place of 14 days applicable to Petrochemical plants.

This was a golden period for petrochemical plants when they not only enjoyed 99% discount on flexa rate but BI time excess  was also reduced to 7 days instead of 14 days.

This situation continued till early 2019 when GIC introduced flexa rate of 1.94%o for chemical plants plus minimum nat cat rates as minimum treaty rate keeping petrochemical plants out of the purview of minimum IIB rating.
This suddenly changed the entire scenario and there was a multifold increase in premium rate of chemical plants along with other petrochemical plants who declared themselves that they are non petro.
Then again an interesting game started and insurance companies due to unhealthy competition again got these units inspected to establish that sum insured of plants using category A and B hydrocarbons is more than 35% of total sum insured and therefore it qualifies to be rated under petrochemical tariff.

The idea was to come out of  minimum IIB rating norms applicable to chemical plants and underwrite such units at minimum nat cat rates without charging minimum Flexa premium as prescribed by GIC for chemical plants.
These plant owners gladly accepted the higher time excess of 14 days applicable to petrochemical plants considering huge savings in premium.
This practice has ultimately ended when GIC came out with new directives that even petrochemical plants must be treated at par with chemical plants using solvents having flash point below 32 degree.

Did you notice how conveniently Insurers mould themselves to provide undue benefit to the customers at the cost of their profitability?
This proves that customer is king in detariff scenario due to unhealthy competition among insurance companies.

Comments

  1. Govind JohriAugust 6, 2020 at 8:32 PM

    In their zeal to underwrite at low rates and exposing themselves to lower time excess is a sign of imprudent underwriting. You are a better judge to know the reaction of Reinsurers in case of faulty underwriting.
    A single large claim would have exposed the fallacy of such callous underwriting.

    ReplyDelete
  2. Govind JohriAugust 6, 2020 at 8:45 PM

    In their zeal to underwrite at low rates and exposing themselves to lower time excess is a sign of imprudent underwriting. You are a better judge to know the reaction of Reinsurers in case of faulty underwriting.
    A single large claim would have exposed the fallacy of such callous underwriting.

    ReplyDelete
    Replies
    1. V.P SharmaAugust 6, 2020 at 9:22 PM

      These insurance were done with the consent of reinsurers because technically they were treated as petrochemical plants applying the rule of 35%

      Delete
  3. rbAugust 8, 2020 at 2:48 PM

    So ... reinsurers are no better. What we lack in India is the ability to arrive at a rate for individual risks basis the COPE analysis. Why do we have to always rely on a tariff, reinsurance-driven rates or simply based on loss experience which is the IIB rate?

    ReplyDelete
    Replies
    1. V.P SharmaAugust 9, 2020 at 1:22 PM

      What you say is right if the market is mature.
      Unfortunately Indian market has yet to reach that stage.

      Delete

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