Insurance against Tax Liability in near Future

12 November 2009

In a bid to avoid unpleasant surprises, private equity players and
 companies are demanding covers against changing tax rules.
This has forced insurers in India to file for products like a tax
liability cover, along with warranty and indemnity covers.

insurance-2Insurers say the demand for such a cover shot up
 after the Vodafone tax case where the telecom major
was subjected to a capital gains tax of $2 billion for
 buying $11.2 billion worth shares of Hutchison.

“There is a huge demand from private equity players
 and companies going global. In another three-six months,
we expect to see these products in India,” said Marsh
Managing Director and country head Sanjay Kedia.

He expects deal sizes to be in the range of $4-150 million.

Since these will be mega-risk policies, they will be mostly
driven by reinsurance. In such cases, Indian insurance
companies place 10 per cent of the risk with the national
reinsurer, passing off the rest to international reinsurers.
The premium will vary from 1 per cent to 5 per cent of the sum assured.

“Underwriting risks arising from changes in the tax structure
of a particular country is not easy. We have to see if the
 insurance regulator allows these products,” said a senior
executive of a large private insurance company.