The Hindu Business Line : FMCG majors scurry for cover

The horror stories of `nails in aerated drinks' and `worms in chocolates' have now got FMCG majors rushing for cover. `Product liability insurance' which covers against third party bodily injury and property damage due to the use of a defective product is now finding takers among manufacturers of consumer goods and exporters.

According to insurers, currently the market is relatively small at an annual premium of $15-20 million, but is growing at the rate of 50 per cent. Domestic companies, which are now buying this insurance, include Dabur, ITC, Colgate, Vadilal and MTR Foods. In the case of global brands, smaller policies are purchased in India to avoid the high deductibles of the international insurance policy of their parent companies.

Mr Neeraj Yadvendu, Head, Casualty, Tata AIG General Insurance said, "Five years ago, the demand was mainly from the auto component industry, pharmaceutical companies, and tobacco manufacturers. But now with growing awareness, companies in the textile and food processing industry as well as `ready-to-eat meal' makers are now buying product liability covers."

Given that the propensity towards litigation is very high in the US and Canada, most Indian exporters are contractually obliged to buy product liability insurance. Smaller exporters such as handicraft and chandelier makers are also getting themselves insured.

"Body injury claims arising out of the consumption of food and beverages is now quite common with the hotel industry and FMCG companies. Such instances have prompted companies to pick a "contaminated products insurance policy", a variant of the product liability policy," said Mr V. Ramakrishna, MD, India Insure Risk Management Services.

The policy limit or the sum-assured ranges from $1 million to $50 million. The bulk of the companies, however, buy policies ranging from $1 to $5 million. The average settlement in the US in case of a claim is, however, much higher at $750 million as legal and defense costs are prohibitively high.

Mr Ramneek Goyal, Product Manager, Casualty Lines, ICICI Lombard General Insurance, said, "In the next two years the demand for liability insurance particularly from the domestic market will increase. Proactive financial regulators and judiciary, speedy action from entities like the Food and Drug Administration and changing lifestyles will make this happen."

In a recent case, a house in the UK was destroyed in a fire and damages were claimed against an Indian chandelier maker. The reason, surveyors found, was that the fire had been sparked off by refraction of sunrays through the glass beads of the chandelier onto the curtain.

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