London insurers are underestimating the country’s improved risk management, warns broker
The London insurance market could miss out on covering Indian mega-projects by underestimating its improved risk management.
By recognising new opportunities in heavy industry, London will be able to promote its expertise and capacity to attract the business that is fuelling India’s growth.
Ambitious plans for India’s economy have already achieved 9-11% growth in GDP, exceeded only by China, as the country is attracting $16bn of foreign direct investment (FDI). Major initiatives and potential include:
- Government of India’s mission of “Power for all by 2012” which aims for installed generation capacity of 200 GW by 2012;
- Permission for 100% foreign-equity participation in the construction industry to create an industry value of $59.4bn;
- Retail sales in India's consumer goods market are expected to grow to $400bn by 2010 and the FDI stake is up by 51% with investment from major foreign players including Walmart and Carrefour.
Kavita Pandey, head of Aon’s India Desk in London, said: “To dispel the myth of poor risk management in India, we organised site visits for underwriters to challenge their views. These proved invaluable and provoked new attitudes and interest in Indian risks, which is now being reflected in the rates.
“Singapore is still a competing market but London is ahead of the game with excess of loss and now can drive this area with using expertise to write massive projects in BRIC countries.”
In an increasingly competitive global market, now is London’s chance to seize upon the opportunities and cover these risks. The local Indian market comprised four government owned insurers until liberalisation in 2000, allowing 26% foreign direct investment in today’s $6bn market.
This now includes 11 joint ventures with international insurers including RSA and AIG. However, Indian companies can only export their risks when the sum insured is over 610m, following legal enforcement in 2007 by the Insurance Regulatory and Development Authority (IRDA).
At the same time, underwriters need to be aware of risks, including joint venture cultural differences, talent management (seeing a shift from insurance to banking), reputational risk, a poor score on corruption index, health and safety and natural catastrophes.
Kavita added: “Historically, there has been no financial incentive to introduce risk management, rarely going beyond basic loss control surveys. However, recognition has grown now that listed Indian companies must adhere by corporate governance. A culture of solidarity in firms also means that employees are becoming involved with risk management as they view it as ‘their’ company and its values are further embedded.”