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Auto Firms Plan Insurance Cover Against Recalls.

December 24, 2014

Car manufacturers and auto parts suppliers are contemplating buying insurance policies that would insulate them from product recall risks, ahead of the Indian government passing legislation that will make such recalls mandatory in the domestic market.

The new Motor Vehicles Act is likely to be tabled in the ongoing session of Parliament. Among other things, the law will also penalize auto makers for manufacturing and selling defective vehicles, increasing the overheads of car makers and auto parts suppliers, reported the Livemint news website.

Such insurance covers are prevalent in mature auto markets such as the US and Europe; in India, in the absence of a recall policy, the number of firms opting for such cover for the domestic market, has been far and few in between, said experts.

In July, 2012, industry lobby, the Society of Indian Automobile Manufacturers, introduced a voluntary code to cajole vehicle makers to recall defective cars. Since then, close to 600,000 cars and utility vehicles have been voluntarily recalled by auto makers in India.

However, while general insurers see auto recalls as a growing opportunity for them to sell their products, they are unlikely to jump in without a careful deliberation of the risk factors, said executives. “Once the legislation in India is passed, the rules will be more stringent, and we as an insurer will have to rework the terms and conditions for providing such covers,” said Mr G Srinivasan, Chairman and Managing Director of New India Assurance, India’s largest state-run non-life insurer.

The firm, said Mr Srinivasan, will look at the standards of auto makers and vehicle parts companies, their quality control, and the best practices they follow, before underwriting the risk on insurance products in this segment.

Companies in India with export commitments have been acquiring product liability insurance, including a cover for product recall. Auto parts maker Motherson Sumi Systems, which generates 85% of its revenue from outside India, is covered for recall and liability, said Mr G N Gauba, Chief Financial Officer of the firm.

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