Terror insurance covers are going to cost more from April 1 with the General Insurance Corporation, the Indian reinsurer and the manager of the terror pool, getting regulatory approval to increase the premium rates.

The premium rates would increase by up to 54 per cent (see table). GIC executives said that the hike could have been higher given that risk perception has increased significantly after the spate of terror attacks on the country, with those on Mumbai severely affecting the way business was being undertaken till now.

For the moment, GIC, which informed insurance companies about the move on February 11, has decided to keep the maximum cover at Rs 750 crore (Rs 7.5 billion), though there was a suggestion to enhance the limit to Rs 1,000 crore (Rs 10 billion). Though insurance companies will insure beyond the limit, comprising material damage to the property and loss-of-profit arising out of a terror attack, the claim will be capped at Rs 750 crore.

Terror insurance rates
Segment	Existing	Revised
Industrial risk	0.22	0.30
Non-industrial risk	0.13	0.20
Residential risk	0.08	0.10
Rates per Rs 1,000 for total sum insured of up to Rs 750 crore per location

Individuals or companies can purchase a terror insurance policy as an additional cover for which a separate premium is paid. The premium received from this segment of the business is transferred to the pool managed by GIC.

With insurers not agreeing to increase the cover beyond Rs 750 crore from a single incident, Indian companies, especially large establishments such as refineries, power plants and airports, would have to purchase additional terror insurance from foreign markets. In the international reinsurance market, the terror risk premium has shot up significantly as India is perceived to be a location prone to attacks.

"The perception has changed even more after the development in the Swat valley in Pakistan, especially because India is seen as a soft target which does not respond to the attacks in the same way as the US or Israel," said an executive associated with the reinsurance business.

The new rates will be applicable to fire, engineering and industrial all-risk policies.

GIC and general insurance companies, which sell the terror cover, agreed to hike the premium rates as the claims from the 26/11 attacks on Mumbai, estimated at Rs 700 crore (Rs 7 billion), would have depleted the terror pool corpus. Over the last seven years, Rs 1,300 crore (Rs 13 billion) had accumulated into the pool. Prior to the claims arising from the Mumbai attacks, very few claims had been made with only Rs 2 crore (Rs 20 million) paid out of it during the last two years.

Also, the underwriting committee, which decides the policy and the coverage, did not agree to a proposal to provide insurance mid-way through the policy term. As a result, terror insurance can only be purchased when the policy comes up for annual renewal.