The Hindu Business Line : `With increasing outsourcing, auto part makers are at high risk'

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`With increasing outsourcing, auto part makers are at high risk' — Few takers for product liability cover

K. Giriprakash

"Indian auto component makers do not realise the need for such a cover and hence don't factor it as the cost of doing business in the US and Europe. "

Bangalore , Aug 2

POOR risk awareness is hindering insurance companies from selling product liability covers to auto component manufacturers in the country.

Less than 10 manufacturers out of a total of over 400 companies registered with the Auto Component Manufacturers' Association of India (ACMA), an industry body, have taken the product liability insurance and some of them have done so because it was insisted upon by their clients.

"Except a few, others don't seem to realise the enormity of risk involved in not having a liability cover," an official of an insurance company told Business Line. Without such a cover, automobile parts manufacturers face the risk of huge claims and litigations in case their products are found faulty. They also face the prospect of losing huge contracts as automobile manufacturers such as Ford and General Motors insist on such a contract before placing orders with them.

Last year, ACMA had roped in Tata AIG to make presentations to its member- companies on the benefits of such an insurance cover. But it found few takers. The official said Indian auto component makers do not realise the need for such a cover and hence don't factor it as the cost of doing business in the US and Europe. "They refuse to see the writing on the wall," the official said.

"Once we brought them together, it was up to the component makers to take a decision," the ACMA Executive Director, Mr Vishnu Mathur, said.

The ACMA president, Mr K.V. Shetty, said with large OEMs shifting focus to India to outsource more work from the country, the auto component makers face newer risks such as line stoppages, recalls and claims. Hence it was necessary for these manufacturers to arm themselves adequately if they want to expand their businesses.

The insurance company official said certain claims could even wipe out the net worth of some of the medium-sized auto component manufacturers in India. "In the US, liabilities are insured while in India the focus is on assets," he said. He said in case it is proved that a faulty product was the cause of an accident, the damages could be huge. An insurance cover can also prevent a huge claim being sought as the claimant realises that he will have to fight with a major insurance firm that has experience in handling such claims.

Currently over 50 per cent of the total industry exports is to the US and the European Union. According to ACMA, exports could touch $2.7 billion by 2010 and if global sourcing picks up, the total exports could even double to around $5 billion. An auto analyst said that to achieve such a target, Indian auto component manufacturers need to realise the risks involved in doing business outside the country and prepare themselves to face any eventuality.

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