The Tort age is upon us! This is not a litigious society,Courts are slow and costs are low does still rhyme,but does not factually hold true anymore. What tort? And tortfeasors,having a field day,is well on its way to become history in India. Its the major tectonic shifts which have only begun to cause early jolts. There is lot more to come. Whats driving this change? How much of it is internally driven,extraneous,or external to the country? At each level of the change,what are the remedies,recourse and possible risk transfer mechanisms,if any? What can insurers do and the challenges faced by them? Internal,extraneous & external We live in times of high inflation,average life span has been going up,per capita income is on the rise,lifestyles are evolving,the middle class keeps growing,and so is urbanisation. Media activism,together with the amazing power of social media,which is in turn backed by the genie of unleashed RTI,consumerism,literacy and Anna movement,make this unfolding drama extremely potent. The new Companies Bill gives this a further boost as well as the power of class action finally in the hands of our denizens. We saw how Satyam Computers overseas retail shareholders could enforce their grievance and Indian nationals could not. It could repeat in Coal India Limited but might turn out to be very different for the National Spot Exchange Limited (NSEL). With the recent award for medical malpractice,Calcutta High Court has awarded with interest an equivalent to almost Rs 11 crore against the hospital and treating doctors. While the deceased was a Non-Resident Indian (NRI),it does not require many of the rich Indians to be an NRI to qualify for even bigger awards. There is a ticking time-bomb in the unlimited third-party bodily injury cover under motor insurance. The experiment with pooling the exposure for commercial class of vehicles took an ugly turn and the non-life insurance industry paid a hefty price. So,its one thing to make available products and solutions to all emerging risks,but quite another to price and service it in a sustainable way. Unlike many run-of-the-mill forms,the insurance contracts here are of long-tail nature. It is important,therefore,to ensure that your insurer is around when a claim comes your way. In wake of detariffication,the expectation on pricing reduction has been across all classes. A cheap insurance policy is never the best solution. As the frequency and severity of claims triggers rises,the premium pool will prove to be grossly inadequate. What are the sources of such triggers? The Bhopal gas tragedy was one of the far and few local ones and continues to evade a resolution. The ITeS industry was one of the pioneers in putting India on the outsourcing/off-shoring leadership course. But that also opened doors for the errors and omission liability coming back thanks to shortcomings faced by clients in overseas locations. There are also Indian multinationals inviting D&O (Directors and Officers liability insurance) claims arising from fiduciary or like lapses in overseas locations. Employment practices and stakeholder activism are some of the largest contributors to this. Sexual harassment,wrongful dismissal,insider trading and corrupt practices are no longer alien to the Indian corporate world. Libel,slander and all other forms of hurt to individuals by any form of professionals do not any longer passively pass those affected. They will resort to all forms of recourse whether insured or not. This could be the traditional route,alternate dispute resolutions and can sometimes be creative. The Way forward The advent of the new Companies Act,still a work-in-progress,poses both threats and opportunities to Indian insurers. The emerging risks open up tremendous opportunities for both D&O liability and Professional Indemnity insurance. No independent director worth his or her salt would like to join a board,howsoever illustrious,without a protection in the form of a D&O cover. At present barely under 10 pre cent of all Indian listed companies buy insurance to protect its directors and officers. Many of those who do buy have questionably low limits not even adequate to fund potential legal expenses. Gatekeepers of governance like the Company Secretary will,of course,need their share of protection too. However,independent CS and auditors will be prone to professional errors and omissions. Hence a need for Professional Indemnity insurance. Companies buying D&O cover would not be required to allocate the premium expense as remuneration to covered individual,unless the individual is found guilty. Last,but not the least,all professions would be increasingly vulnerable to their errors and omissions whilst dealing with individuals. The emerging governance order partly driven by the new Companies Law and the rest by multiple drivers jointly and severally impacting India will present challenging opportunities and threats to its insurance industry as much to the fiduciary India. The time for liability classes of insurance to play an increasing role in the daily lives of existing and potential insureds has arrived. New cover * New Companies Bill gives the power of class action finally in the hands of our denizens. We saw how Satyam Computers overseas retail shareholders could enforce their grievance and Indian nationals could not. * Emerging risks open up tremendous opportunities for both D&O liability and Professional Indemnity insurance. Independent directors would not like to join a board without a protection in the form of a D&O cover. * In wake of detariffication,the expectation on pricing reduction has been across all classes. A cheap insurance policy is never the best solution. As the frequency and severity of claims triggers rises,the premium pool will prove to be inadequate The author is Managing Director & CEO,Raheja QBE General Insurance Co. Ltd. Views expressed are personal.
