Mumbai: Over the past few weeks, windows of outlets set up organized retailers have been smashed, merchandise spoiled and customers harassed across the country. But even as opposition to organized retail intensifies, retail chains may not have to pay higher insurance premiums, yet.
Insurance companies say damage in such incidents can be symbolic and limited and may not lead to large claims being made or lead to increased premiums for retailers. But smaller retailers are mounting an increasingly virulent campaign against the growing presence of organized retail.
In Lucknow, Reliance Fresh store fronts, the retail arm of Reliance Industries Ltd, were smashed on the first day of business.
In Ranchi, street vendors spent a few weeks in jail for vandalising stores.
Currently, organized retail forms just 4% of India’s more than $300 billion (Rs12.3 trillion) retail industry, according to estimates from Man Financial, a Mumbai-based insurance broking group. But, it is growing at more 40%, attracting large retailers such as Wal-Mart Stores Inc., Reliance Industries Ltd, and the Aditya Birla Group. This has led to growing angst among small retailers who say that around 12 million livelihoods could be affected by the growth of organized retail.
“Typically, such incidents lead to window panes or neon signs being smashed,” says Rahul Aggarwal, chief executive of Optima Insurance Brokers, a Delhi-based insurance broking company.
“These incidents look bad on television but they may not lead to much damage.”
A retailer, who did not want to be named, also says that insurance premiums for the industry would not be affected because it was essentially Reliance Fresh stores that are being targeted.
Around 8-10 stores of the chains more than 300 stores had been affected.
Most organized retailers have insured all their stores against fire and allied perils, which includes cover against riots and such incidents. Premiums have fallen sharply in this segment since January, because the Insurance Regulatory and Development Authority (Irda) has started a process of eliminating tariffs.
Regulations saying premiums in this segment could not be below 51% have been revised and premiums are now decided based on risk.
“Currently, rating patterns are controlled by Irda,” says U.V. Singh, regional manager at National Insurance Co. Ltd, a state-run insurance agency, that works with several organized retailers. “So we don’t see any change in the current scenario.”
While they do not expect the opposition to abate, insurance companies are also not expecting large claims to be filed. For instance, while National Insurance got insurance claims of around Rs1,000 crore for damages related to the Mumbai floods, it has not received any claims stemming from the current opposition.
But the detarriffing process could lead to the creation of separate insurance for such incidents of violence and put at risk assessment of premiums from April, says Santosh Balan, spokesperson for Bajaj Allianz General Insurance Co. Ltd.
For instance, insurance companies could charge a higher premium under this category if the stores are in West Bengal, where opposition is strong.
R. Subramanian, managing director of Subhiksha Trading Services Ltd, says insurers believe there is a sudden element of risk is coming on. “But, it’s not serious and we believe that’s something not going to be sustained forever,” he says.