L&T General Insurance Company Ltd (L&T Insurance), a wholly owned subsidiary of Larsen & Toubro Ltd, offers a range of insurance products for the corporate sector including the project industry such as machinery breakdown, electronic equipment, contractors and erection all risk, and contractors plant and machinery insurance. Joydeep Roy spoke to Sandeep Menezes on the project insurance scenario in India.
During the 12th Five-Year Plan (2012-2017), investment in infrastructure is expected to be around $1 trillion, leading to a huge demand for project insurance.
Going forward, project insurance definitely has to emerge as an area of growth because India will simply per force need to grow its infrastructure.
There might be a slump now, there might also be dollar issues, policy paralysis – however, there is no getting away from the fact that as a country we need to increase our infrastructure. Therefore, it is inevitable that in a period of time we can’t talk short term, but yes, in the next five or 10 years, the project insurance market in India will grow substantially as a part of the overall pie.
How much growth do you foresee in the project insurance market in the years ahead?
Today, unfortunately, the sad part is that at the current moment the project insurance market is not growing as it should in spite of there being huge potential.
What the main reasons for growth eluding the project insurance market?
The project insurance market is not witnessing growth although there is huge potential simply because there are not enough projects. Only if enough projects are there, can those projects be insured.
Delays and postponement of projects have not allowed the project insurance market to grow to its true potential. There are hardly a few projects today.
Are there more risks in insuring projects in India due to uncertainties like delays and lack of policies?
It is both yes and no because with the expertise that we have as insurance companies and reinsurance expertise, there are many risks in a project such as risks of delays, loss of profits, physical risks, liability risks etc. I think there is talent in India to adequately configure the risks; that is not an issue.
Do you feel contractors and promoters are avoiding insurance to rein in project costs?
I don’t thinks so. Growth is not happening simply because the projects are not there, that’s all.
Currently, the PSU insurance companies hold most of the project insurance market in India. How can private insurance companies break this dominance?
That is because of historical project insurance. One needs to understand that project insurance is long term – a project insurance continues for five to six years. A lot of private sector players do it; we do it but there has to be enough projects then only we can do it.
Most infrastructure projects are implemented through government entities. Does this scenario provide PSU insurance companies with an edge over private players?
They will have an advantage not because they are government owned but due to the fact that they have been at it for a long time and have higher capacities. They don’t have to go to international reinsurers which we have to.
What is L&T Insurance’s long-term strategy in the project insurance market?
Without any doubt, project insurance remains one of the main focus areas for L&T Insurance. Currently, project insurance segment comprises around 8 to 10 per cent of our total business. But going forward, we would like to increase our project insurance business substantially.