 "Vehicle recalls hit motor insurance")
Japanese car maker Honda on Monday said it is recalling 2,338 units of its hatchback Brio, compact sedan Amaze and sports utility vehicle CR-V, manufactured between September 2011 and July 2014, in India to replace a faulty part related to airbags.
Similarly, Japanese auto major Nissan said last week it was recalling 9,000 units of its compact car Micra and sedan Sunny in India to replace faulty airbags. This, with a spate of other recalls, has been a cause of worry for the non-life insurance industry.
General insurance industry offers insurance for product recalls by the automobile industry. It covers product recall expenses, including advertising, as well as shipping costs and legal liability. The premium for this cover depends on the size of the vehicle, brand and segment. G Srinivasan, chairman and managing director, New India Assurance, said vehicle recalls have been a matter of concern for the industry. He said with respect to product liability, there could be some restrictions placed.
If an auto company has taken a cover against recalls, the insurance company pays all the costs associated with the recall. If there is a large number of vehicles that are recalled and on regular intervals, the insurance company suffers a big loss owing to regular payment of these related claims.
There is a recommendation to empower the proposed National Authority for Road Transport and Safety to force recalls in India. However, all automobile makers have conveyed their concern to the Society of Indian Automobile Manuf- acturers (SIAM) over a proposal that permits recall of a vehicle if 100 or more buyers report it to the authority.
Sanjay Datta, head of underwriting and claims at ICICI Lombard General Insurance, explained that some of the recalls are covered by the global recall programmes of automobile companies. He added that companies would prefer to recall the vehicles that get into safety-related litigations that would cost them huge sums of money.
India's 3.1 million automobile sales a year put it among the top six markets in the world, but the country does not have a recall policy. Recalls are voluntary according to a code drawn up by SIAM two years ago. More than 700,000 cars have been recalled by Maruti Suzuki, Mahindra & Mahindra, Toyota, General Motors, Ford, Honda and Nissan in the past two years in India.
Non-life players said that since the country does not have an official recall policy, it is very difficult to fix a price for these instances. "Auto companies voluntarily recall vehicles if there are grave dangers to driver/passenger safety. Hence, from an insurance perspective, it is a very risky cover, especially since there are no set codes that we are to follow. The number of recalls are on the rise and hence we may look at increasing premiums, apart from building up on the exclusions," said the chief executive officer of a private general insurance company.
According to estimates, the combined ratio for motor insurance might touch 200 per cent by the end of March 31 next year on the back of higher claims from this segment. This ratio is the sum of incurred losses and operating expenses, measured as a percentage of earned premium. It is a measurement of profitability. A combined ratio below 100 per cent indicates an insurer is profitable.
General insurance companies incurred total claims of Rs 17,589 crore in the motor segment in 2012-13, according to data released by the Insurance Inform- ation Bureau of India. The total premium from the segment stood at Rs 28,460 crore.
Similarly, Japanese auto major Nissan said last week it was recalling 9,000 units of its compact car Micra and sedan Sunny in India to replace faulty airbags. This, with a spate of other recalls, has been a cause of worry for the non-life insurance industry.
General insurance industry offers insurance for product recalls by the automobile industry. It covers product recall expenses, including advertising, as well as shipping costs and legal liability. The premium for this cover depends on the size of the vehicle, brand and segment. G Srinivasan, chairman and managing director, New India Assurance, said vehicle recalls have been a matter of concern for the industry. He said with respect to product liability, there could be some restrictions placed.
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Product recall occurs if there is some defect in its design or operation that could cause harm/danger to the person(s) using it. It could also be performance related, pertaining to the fuel efficiency, braking or acceleration. This would also impact the warranty offered to these products.
If an auto company has taken a cover against recalls, the insurance company pays all the costs associated with the recall. If there is a large number of vehicles that are recalled and on regular intervals, the insurance company suffers a big loss owing to regular payment of these related claims.
There is a recommendation to empower the proposed National Authority for Road Transport and Safety to force recalls in India. However, all automobile makers have conveyed their concern to the Society of Indian Automobile Manuf- acturers (SIAM) over a proposal that permits recall of a vehicle if 100 or more buyers report it to the authority.
Sanjay Datta, head of underwriting and claims at ICICI Lombard General Insurance, explained that some of the recalls are covered by the global recall programmes of automobile companies. He added that companies would prefer to recall the vehicles that get into safety-related litigations that would cost them huge sums of money.
India's 3.1 million automobile sales a year put it among the top six markets in the world, but the country does not have a recall policy. Recalls are voluntary according to a code drawn up by SIAM two years ago. More than 700,000 cars have been recalled by Maruti Suzuki, Mahindra & Mahindra, Toyota, General Motors, Ford, Honda and Nissan in the past two years in India.
Non-life players said that since the country does not have an official recall policy, it is very difficult to fix a price for these instances. "Auto companies voluntarily recall vehicles if there are grave dangers to driver/passenger safety. Hence, from an insurance perspective, it is a very risky cover, especially since there are no set codes that we are to follow. The number of recalls are on the rise and hence we may look at increasing premiums, apart from building up on the exclusions," said the chief executive officer of a private general insurance company.
According to estimates, the combined ratio for motor insurance might touch 200 per cent by the end of March 31 next year on the back of higher claims from this segment. This ratio is the sum of incurred losses and operating expenses, measured as a percentage of earned premium. It is a measurement of profitability. A combined ratio below 100 per cent indicates an insurer is profitable.
General insurance companies incurred total claims of Rs 17,589 crore in the motor segment in 2012-13, according to data released by the Insurance Inform- ation Bureau of India. The total premium from the segment stood at Rs 28,460 crore.