Leading general insurers and brokers have said the claims, arising from the actions of overseas customers, have shot up during the last two years. All the major IT companies have found themselves in dispute with their overseas clients in some way or the other. Majority of these claims have happened because of the Satyam episode. All the insurers who have received these claim notices are trying to sort out things with IT companies, industry sources said.
None of the insurance companies and insurance brokers are prepared to reveal the details of these claims as they are bound by clause of secrecy while providing liability covers called errors and omissions (E&O) to the IT/ITeS companies.
E&O insurance protects insured by responding to professional liability claims across the spectrum of business undertaken by the IT/ITeS companies i.e. consulting, software solutions, business process outsourcing, and product engineering services.
There is a new kind of awareness about liability insurance in India now among the IT, pharma, auto, manufacturer of auto components and chemical companies. Liability insurance protects the insured against claims made by third parties alleging ones negligence or inappropriate action resulted in bodily injury or property damage or financial loss to them.
Earlier these liability products were bought by a few companies in India. Particularly the companies which were going for ADR & GDR had to take these covers as part of their listing compliance, said Rajive Kumaraswami, head risk & reinsurance, ICICI Lombard General Insurance.
The Satyam episode was a kind of triggering point for India Inc, who are now buying liability products irrespective of their size, said Kumaraswami.
Though there are many kinds of liability insurance products, the corporates in India mostly buy directors and officers (D&O) covers, he added. The policy is meant for the top management and senior officials of the company who may be personally held liable for any actual or alleged breach of duty, breach of trust, breach of warranty of authority, neglect, errors, misstatement and omissions by anyone in the company.
Anyone dealing with the company can sue its directors and officers alleging a financial loss. Exposure varies from shareholders, creditors, business partners, competitors, regulators and even employees.
In 2010-11, liability insurance which had contributed a total premium of R860 crore was the seventh largest portfolio for the Indian general insurance portfolio. The overall liability market is growing at 15-20% and private sector insurers have been able to larger volume of business than their public sector counterparts.
According an official of GIC Re, growth in demand for liability covers are now felt more as a need rather than merely meeting legal requirement. Claim notifications that various lines of liability insurance business have seen recently helped increase rate of liability covers. Owing to consistent growth and a profitable portfolio, this segment is in great demand for insurance companies in Indian market, observed the GIC Re official.