As recalls rise, auto-component makers seek higher cover

Even as the last two years have seen the highest number of recalls by automakers in India, auto-component manufacturers have started seeking larger product liability and recall covers, say insurers.

Further, premiums on such covers too could go up due to limited re-insurance for such products.

“Indian markets saw five major auto recalls in 2015 and seven such recalls in 2014. This has impacted insurers’ premium books as there has been various recalls by automobile distributors and dealers causing a loss on account of recall expenses and replacements,” said KG Krishnamoorthy Rao, MD and CEO, Future Generali India Insurance.

The premiums in this segment, too, have seen a 50-70 per cent rise over that of the last financial year, he said.

Rajiv Kumar, Head of Operations and Corporate Planning, Universal Sompo General Insurance, said that the demand for product liability and recall covers are expected to rise with increasing consumer awareness, regulatory intervention, stringent safety standards, and initiatives of the government and the public to reduce air pollution.

Currently, according to law, recalls by auto manufacturers in India are “voluntary” based on the Society of Indian Automobile Manufacturers’ ‘Voluntary code on vehicle recall 2012’.

The unprecedented rise in the number of voluntary auto recalls led the government to come up with the Road Transport and Safety Bill, 2014, which when passed by Parliament will mandate auto manufacturers to recall a vehicle on receipt of 100 or more complaints of a defect which can harm drivers and passengers.

Insurers say that multinational automobile companies in India are already covered under a global insurance programme taken by their parent companies for larger policy limits.

“The demand that we see is from auto-component makers. Insurers are typically cautious in underwriting them,” Sasikumar Adidamu, Chief Technical Officer (non-motor), Bajaj Allianz General Insurance, said.

He explained that if there is something wrong with the car to which an auto-component maker has supplied parts and the recall by the manufacturer is attributable to them, then there is an element of the recall cost which is pushed back to them (auto-component makers). So, they do not have any control in the way the recall is conducted. According to Sanjay Kedia, Country Head and CEO, Marsh India Insurance Brokers, re-insurers have, by and large, been very cautious in providing cover for recalls and product liability in the auto space as the industry has seen many claims in the ancillary manufacturers’ segment and the impact on the balance sheet is immediate.

Kumar added that the claims are not limited to only third-party component manufacturers but software companies too may have their own recall requirements and liabilities. Recently, Volvo announced that it was recalling 59,000 cars in 40 markets because of faulty software that can shut down the engine and the electrical system.

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