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New India has been backed by US reinsurer Chubb in this mega insurance deal for the country’s biggest fuel retailer by value, customer touch points and capacity. The policy will be renewed for another year effective October 1.
Indian Oil had opened a tendering process for this annual policy in July where a dozen public and private sector insurance companies had sent in expressions of interest. But after more than two months of waiting and numerous letters seeking a timeline for completion of the process, insurance companies were verbally told the tender process has been scrapped.
Later, on September 20, Indian Oil issued a letter of award renewing its policy with New India “on the same terms and conditions as per the tender terms” at an increased premium of ₹292 crore, up from the ₹253 crore the company paid last year.
Separate emails sent to an Indian Oil spokesperson, its chairman SM Vaidya and CFO Sanjay Kaushal five days ago remained unanswered until the publication of this report. New India chairperson Neerja Kapur did not respond to ET’s mail seeking comment.
“As a reinsurer, we worked with a local insurance company that, we understand, complied with all the local requirements,” Chubb said in a statement in response to ET’s queries
New India has been given a 65% policy share, which some executives described as ‘disproportionate’. The remaining pie was divided among nine public and private sector companies, with their shares ranging from 2% to 8%, the award letter accessed by ET showed.On Thursday, insurance broker India Insure, which was hired by United India Insurance to engage with Indian Oil on pricing and underwriting capacity, wrote to the Ministry of Petroleum and Natural Gas seeking a new tender.
“The only appropriate, fair and transparent way to go forward will be to… discover the price through a fresh tender instead of renewing the Indian Oil integrated policy with the same insurer -foreign reinsurer (a monopoly of eight years now) with premium exodus out of India while the underwriting capacity of the national reinsurer GIC Re remains idle, which is against the regulation and finance ministry guidelines,” India Insure said.
The policy covers all Indian Oil assets including pipelines, pumps, storage tanks and distribution network and is considered prestigious in the insurance industry because of the size and scope of the client. The fuel retailer has more than 60,000 customer touchpoints, 70.05 MMTPA of refining capacity and more than 17,000 KM of cross-country pipelines.
Last Year’s Contested Discount
Industry executives told ET that there were questions over the process even last year.
“Last year, the New India-Chubb combine offered a 2.25% post-tender discount to offer a premium of ₹253.30 crore, beating United India’s tendered price of ₹256.85 crore on the total sum assured of ₹4.03 lakh crore, which itself was questioned by insurers and an official complaint was filed with the chief vigilance officer (CVO) of Indian Oil,” said a person involved in the process. “The late discount offered was itself a violation, but this year they have gone ahead and offered it to them without a tender.”
General insurance executives said the Indian Oil move to nominate New India without a tender has caused a stir.
“In the allotment letter, they have said that the policy has been awarded by NIA on the same terms as the tender. If that is the case, why not complete the price discovery via a tender? Conversely, if the tender is scrapped, then why not go ahead and nominate New India as the lead insurer on the same terms as last year?” asked an executive.
Indian Oil, insurance executives said, has argued that the policy has been renewed since the total claims are below the 60% threshold set by the tender document last year. Interestingly, the new policy has a so-called swing clause that allows the reinsurers to charge an extra premium in case claims increase beyond 60%.
Also, this year New India has foregone its ceding commission, the amount it receives from brokers as a fee for taking reinsurance companies on board.
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