Recall and legal action make insurers hesitant over auto, pharma liability covers

The insurance companies have become hesitant over selling product liability in the auto and pharma sector following a number of recalls by auto companies and legal action against Indian pharma companies overseas.

The companies are treading a caution path with a leading pharma company which had a product liability cover of Rs 25 crore using up the entire amount in legal charges in respect of a product liability claim. In the auto sector, General Motors had recalled 1.14 lakh Tavera multi-purpose vehicles and Yamaha had recalled 56,000 Ray scooters after detecting manufacturing defects.

Earlier this year, Ranbaxy had coughed up close to $500 million in penalties to US regulators to settle a case of substandard manufacturing practices and falsifying data.

Insurers have been selling product liability cover up to $20 million (Rs 120 crore) and recall covers ranging from $3 million (Rs 18 crore) to $5 million (Rs 30 crore).

“Insurers have always been cautious about auto and pharma when it comes to product liability. Recent incidents will add to their concerns,” said G Srinivasan, chairman, New India Assurance.

“We have had recall claims, but none of the recent events are covered by us,” said Srinivasan.

According to sources, there are international policies that cover proactive recalls but the underwriting procedure is very stringent and insurers go through all the quality control processes followed by the company before issuing the cover. Insurers believe that GeM India has a product cover as part of an international ‘umbrella cover’ which covers operations across geographies.