The Hindu Business Line : Pilferages hurt pharma cos, insurers

It may be strange that medicines are protected by gun-totting security men. But the loss of medicines to "thieves" seems to be a major concern for both drug-makers and insurance companies.

According to insurance company officials, losses in terms of a claims-to-premium ratio can touch 500 per cent for the pharmaceutical sector alone.

Hijacking and theft as well as rain-water damage are the most common reasons for losses during inland transit. "The highest losses are reported from the pharma sector, particularly due to their resale value. The average loss in a single consignment can be Rs 4-5 crore for trucks and Rs 10-15 crore in the case of ships," says Mr Atin Rastogi, Area Manager, ICICI Lombard.

Cipla's Chief Financial Officer, Mr S. Radhakrishnan, admitted that pilferages were poking a hole in the pharma industry's pocket. Some years ago, Cipla employed extra security and had gun-totting men accompanying the consignment of medicines, he recounted.

Hijacking of medicines during transportation is a problem that comes up intermittently and it has re-surfaced over the last few months, according to him.

The insurance cover for the transportation of goods is directly proportional to the value of the production and can for instance be as much as Rs 7,500 crore. According to insurance industry sources, companies such as Dr Reddy's, Cipla, Sanofi-Aventis and Glaxo SmithKline have seen losses on such counts in the recent past.

"The losses from the pharma sector are very high because they are expensive goods. In addition, medicines are sensitive and even in the case of slight damage they are rendered a complete loss," says Mr Sibesh Sen, Head, Marine Operations, Tata AIG General insurance.

To reduce its exposure to such incidents, the pharma industry breaks up its consignment and sends it in smaller volumes. They also try to keep their consignments off border areas at night. "We plan in such a way that the consignment crosses the outskirts during daytime and not at night," said Mr Radhakrishnan.

Insurers observe that very often there appears to be a nexus between thieves and chemists. "Pharma companies use poor modes of transportation, which in turn aggravates the losses. Against the international practice of using containers, most companies use trucks with just a tarpaulin sheet thrown over," said a senior insurance company official.

Drug companies are beginning to take better care, according to a pharma industry official.

Insurers further point out that zones such as Bihar, Uttar Pradesh and Haryana are notorious for such pilferages. In some cases, thefts of "expired" drugs are even staged to claim insurance, said a senior official at a public sector insurance company.

However, they added that the entry of large retail chains could ensure that drug companies tightened their supply-chain management and plugged the loopholes in transportation.

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