Japanese crisis lifts demand for suppliers’ extension cover

Demand for suppliers' extension insurance cover from manufacturing companies has picked up following the recent crisis like the earthquake in Japan and floods in Australia. Suppliers' extension is offered as an add-on to business interruption cover, which insures business interruption due to any material damage or loss to supplier due to natural calamities or other accidents.

"There are a lot of enquiries, mostly from auto companies. Domestic companies have also become aware of this policy. Companies have suffered losses due to problems at the suppliers' end," said Bajaj Allianz General Insurance assistant vice-president VP Sharma. The overseas suppliers' policy, however, is covered in case of mega policy where the sum insured is more than Rs 2,500 crore. "Tariffs apply to policies above Rs 2,500 crore. We are seeing more demand from domestic players. There is increased enquiry from small and medium enterprises and manufacturing companies," said Bharti Axa General Insurance MD and CEO Amarnath Ananthnarayan.

Insurance company executives said the demand for covers goes up whenever there is a tragic event. Interestingly, domestic companies are also looking for such covers to insure any business interruption at the supplier's end. After having seen huge losses due to recent catastrophes in Japan and Australia, most reinsurance companies are now restricting the overseas supplier's extension to damage caused by fire, lightening, explosion and aircraft damage (flexa).

According to Rajiv Kumaraswamy, head of reinsurance at ICICI Lombard, reinsurers are now restricting the suppliers' extension cover to flexa risk. So in most policies, damage due to natural calamities is normally not covered. Large risks are heavily reinsurance-driven. Around 90% of the risks in such cases are reinsured. Reinsurers provide insurance to insurance companies.

"Indian insurance companies have taken a hit during recent catastrophes like the floods in Australia. The general awareness and benefits of this policy have risen following the recent events," said a senior executive of a non-life insurance company. S Narayan, MD and CEO of Iffco Tokio General Insurance said it is a difficult policy and they are extremely cautious on this cover as it involves huge risks.