New Delhi: Insurers of the Mumbai hotels that were ravaged in the November terrorist attacks have finally decided to cover all the losses, irrespective of whether they were caused by the attackers or by the security agencies that battled them.

Devastation: A burnt-out balcony of one of the suites on the top floor of the Taj Mahal hotel in Mumbai. P.D. Karguppikar / AP / Mumbai Fire Brigade

“There was a meeting of all general insurers with the (national reinsurer) GIC (General Insurance Corp. of India) where it was decided that all the losses, whether caused by terrorists or security forces, will be covered through the terrorism pool," said a senior official at a private general insurer, who didn’t want to be identified because he isn’t authorized to talk to the media.

A senior GIC official confirmed the company would pay both the Tata Group-owned Taj Mahal Palace and Tower and the Trident, run by East India Hotels Ltd, the full amount after its consultants assess the damage caused by the terrorist attacks. He didn’t want to be identified.

At least 183 people were killed in the almost three days of terror that was unleashed on Mumbai starting 26 November by 10 attackers. Commandos of the National Security Guard secured the two hotels, which have been closed following the attack.

“Insurance companies have decided to pay all the losses because in this case, it is not easy to separate damage caused by the terrorists and the security forces," said Rahul Aggarwal, chief executive, Optima Insurance Brokers Pvt. Ltd. “If the case goes into litigation, there are high chances that the case will be ruled in favour of hotels. Insurers can also lose public confidence if they deny the claim amount."

The Insurance Regulatory Development Authority, or Irda, the industry regulator, has mandated that all general insurance companies collect premiums from terrorism covers in a common pool. Terrorism-related insurance claims are settled using funds from this common pool, created after the World Trade Center attacks in the US in 2001, when overseas reinsurers stopped underwriting risks. GIC controls this pool and premium rates are decided by members of the pool, composed of general insurers. Currently, the rate is 0.22% of the sum assured.

According to rules, Rs750 crore is the maximum the common pool can extend to a single client in one location.

This decision comes a week after discussions on a circular issued by the Tariff Advisory Committee, or TAC, which says only the damage caused by the terrorists will be covered and not the losses caused by the security agencies. Tac is the statutory body that controls rates, terms and conditions for general insurers.

“It is quite indistinguishable whether the damage was caused by the forces or interrorist firing. Therefore, the policy will respond favourably," said a senior official at The New India Assurance Co. Ltd, which insured the Trident complex at Nariman Point in Mumbai. He also didn’t want to be identified.

The Trident complex has a total insurance cover of Rs1,430 crore, but the cost of damage is still being assessed. Tata AIG General Insurance Co. Ltd is the leading insurer for the Taj Mahal Palace and Tower; ICICI Lombard General Insurance Co. Ltd and IFFCO Tokio General Insurance Co. Ltd. are co-insurers.

Cover against terrorism is typically offered as an add-on with property insurance that, along with material loss, also covers loss of business till the property is restored.

For terrorism cover, Indian companies pay a premium of 22 paise per annum for every Rs1,000 insured up to Rs500 crore, 17 paise for every Rs1,000 insured up to Rs2,000 crore and 13 paise for every Rs1,000 insured above Rs2,000 crore.

Another GIC official, who also didn’t want to be identified, said the premium rates will have to be increased to replenish the common pool for terrorism cover once the Taj and the Trident hotels are paid their claims. But Irda has to decide any increase, he said.

He added that globally, reinsurance companies enter into an arrangement with their larger counterparts—in what are known as XL Treaties—by which the insurance claims are distributed among two or three companies.

For example, GIC will reinsure up to Rs2,000 crore and its counterparts in the XL Treaties will underwrite higher amounts. The official said the company had entered into such treaties, but declined to give details.