Demand for product liability insurance sees a surge

Rising consumer court cases, burgeoning litigation costs and increasing awareness among companies about the risks inherent in their business operations has resulted in increased demand for product liability insurance, say experts in the insurance industry.

With the economy growing at 8 per cent thereabouts in the last few years, this segment has been witnessing a 20 per cent year-on-year growth.

THE DRIVER

Majority of the demand for product liability insurance is driven by contractual requirements, mostly arising from Indian suppliers export contracts with entities abroad.

“Companies have realised that even if they operate with the utmost care and provide the best of quality services, there is a possibility that a consumer gets injured or a product gets damaged; then they may be sued,” said an insurance broker.

“Taking a cue from companies who have taken a huge hit due to losses from litigation, many of our clients, especially companies in the pharmaceutical and auto sectors, have started demanding the cover.”

Insurance companies, however, are cautious about providing product liability insurance cover to the pharmaceutical and automobile companies as they are classified as “high risk,” said Mr Rajive Kumaraswami, Head-Risk and Reinsurance, ICICI Lombard General Insurance.

Product liability cover typically covers the manufacturer, distributor, wholesaler, and retailers' legal liability against third-party bodily injury, property damage liability arising out of the use or consumption of product manufactured, sold, handled, distributed or disposed of by the company. This insurance protection pays for legal fees and for any compensation awarded in a suit.

The exclusions in this policy generally include costs incurred in repairing products, costs incurred in recall of products and fines, and exemplary damages.

“Manufacturing companies exporting to North America and Europe opt for this cover as the litigation costs are huge, particularly in America, where they are charged by the minute,” said Mr R. Shiva Kumar, Deputy General Manager, United India Insurance.

Bajaj Allianz General Insurance has a product liability portfolio of Rs 10 crore to Rs 15 crore and it has grown in the range of 15 to 20 per cent this year so far.

“Market leaders in their respective segments generally opt for this cover,” said Mr T.A. Ramlingham, Head-Underwriting, Bajaj Allianz General Insurance.

“However, smaller suppliers who supply to intermediaries and small manufacturers should also opt for product liability as the losses are generally to the tune of Rs 50 lakh to Rs 1 crore which can severely affect the balance sheets of companies.

“Also as legal fees and compensation amount awarded are mounting not just abroad but in India as well, small businesses selling or manufacturing products should have this product.”