Skip to main content

Liability Risk & Insurance

Best SIP Funds Online 


In 2012, when we had just about set-up our insurance broking business, I received an email from a Chandigarh-based exporter. "Do you know what comprehensive general liability insurance is?" he asked. His American client was insisting on this as a precondition to doing business. The local branches of insurers, banks and sales persons had told him that this was a western concept not available in India. Last week, 5 years later, I had a feeling of déjà vu when another, larger Delhi-based exporter, called with exactly the same question. 

Liability remains a hazy concept not understood by the very people most exposed to these risks. Unless the risks are better understood, insuring them remains a distant objective. Swiss Re, in its Sigma report on Liability in Asia, estimates the Indian liability insurance market to be under Rs2,000 crore and just about 2.2% of the general insurance market. This puts India in the 9th position in Asia in terms of proportion and 5th in terms of absolute size. The annual growth of this product, over the past several years, has been slower than the industry. One reason for poor awareness and take-up rates is that claims paid have been few, despite litigation increasing rapidly. Claims as a proportion of premium have been about 40%, which is far lower than in other lines of business such as health and motor insurance. However, this will change rapidly as litigation continues to rise, more people buy this insurance and buyers understand how to claim. 

Liability risk refers to actions for which you can be held accountable, should something go wrong. The insurance does not remove the risk of litigation but pays for your defence and penalties. There are many liabilities you face but four, in particular, are important to know. These are: risks arising because of disgruntled customers; accountability for issues in the companies you work in or are on the Board of; injuries to people on your premises or using your products; and accidents involving your workers. These risks are real and ever increasing. 

Some professions are more vulnerable to irate customers. These include doctors, chartered accountants, advisers, architects and builders. Clients file cases if a medical treatment does not work out, tax advice turns out poor, constructed buildings have flaws, or delivery is delayed. A professional indemnity insurance covers such risks that come out of a perceived deficiency or negligence. 

Many of us work in companies or are directors. The more senior you are, the more accountable you will be held for the mistakes. The Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016, broaden the statutory responsibilities of directors and senior executives and also create provisions for penalties. These penalties can cross over company boundaries and encroach on your personal assets, particularly for directors. A case that I am familiar with involves a bank that sued a director for a loan default related to his company. When the director died, the liability was transferred to the heirs who had nothing to do with the loan or the company. Another case, described publicly, involved a start-up entrepreneur jailed because his company had allegedly not paid some vendor dues. A 'directors and officer's liability' insurance protects you in such situations. 

You are exposed to third-party litigation if you run a business that has outsiders visit your premises or manufacture items that could hurt someone, even inadvertently. Restaurants, factories, exporters, makers of consumer goods, auto-component manufacturers and many others face this threat. This can be insured by a 'comprehensive general liability' cover, the insurance that I referred to at the beginning of this column. 

Finally, if you are constructing a home or have a business that employs workers, then you are accountable for accidents they have at work. In cases of a death or disability, the courts decide the compensation under the Workmen's Compensation Act, 1923. This is an unlimited liability, which means there is no maximum level set for compensation. Such risks are insured by the "workers' compensation" insurance. 

Ask the following basic questions when you buy liability insurance. How much sum assured is needed? Will the insurer pay even if you lose the legal case? Will the insurer provide you advice on fighting your case? Will claims that may come up years after your action be insured? 

These questions are difficult to answer. Take the first one on the right level of sum assured. I asked this of a senior liability insurer who told me that you know you should have bought more if your insurance runs out. He was being facetious, of course, but the question remained unanswered. For professionals working on their own, a sum assured of Rs1 crore is a good place to start. As your business grows, this can be increased. For most liability insurances, this will cost under Rs20,000. If you lose the case, unless the damage is deliberate, the insurer will pay the claim. Practically, cases take a long time to settle so insurers may even press for early settlement. In liability claims, insurers are closely involved in your case. Sometimes they may suggest lawyers or even a line of defence. Finally, do remember these claims can come in years after an incident. Insurers will pay these claims provided you have renewed your insurance every year. As in your personal health and term insurance, timely renewals are key. 

A few months ago I was at the family vet, when a young girl asked if our dog bites. "Not at all," said the vet, over-confidently I thought. But then I recalled that the first liability insurance we sold was to the vet—to insure him for situations where someone got bitten in his clinic.



SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...

Use Mutual Fund SWPs for getting fixed payments

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Investors time withdrawals optimally to save on tax The systematic withdrawal plan, or SWP, could be called the lesser known cousin of the much talked about and publicised systematic investment plan (SIP). There's yet another cousin — the Systematic Transfer Plan ( STP ). In SIP, you invest a fixed sum of money at regular intervals (monthly/ quarterly) to buy some units of a mutual fund scheme. In SWP, as the name suggests, you do the opposite: You redeem some mutual fund units from your portfolio to get a fixed sum of money at regular intervals (monthly/quarterly/half year/yearly). In SIP, you get a higher numbers of units when the markets are down, and lesser in a buoyant market. In SWP, going by the product logic, you redeem higher number of units when the markets are do...

AXIS Long Term Equity Fund - The Best Tax Saver Fund for 2016

  AXIS Long Term Equity Fund - Invest Online   History:   The open ended mutual fund was launched on December 21 in the year 2009. It is benchmarked against BSE 200 and managed by the fund manager JINESH GOPANI. Initially the scheme was called as Axis tax saver fund but later it was renamed as Axis long term equity fund with effect from September 2, 2011. Nature of investment: As far as asset allocation is concerned, 97.52% of the stocks are equity and 0.02% is debt based. The primary focus of the fund is to invest in diversified equity stocks that have higher growth potential. Total asset size of the fund is in the tune of 4,996 CRORE as of June 30, 2015. Performance: The performance of the fund for one year, 3 years and 5 years are 23.6%, 29.9% and 19.1 respectively which are far greater than 6.4%, 14% and 5.6% benchmark figures. It has also preformed fairly well against SBI magnum Tax Gain (G) and HDFC tax saver (G). The growth comparison is enumerated below;                        ...

Health insurance guide - Part I

Insurance, by definition, is morbid. What if I die suddenly? What if my home caught fire? What if I had to undergo expensive medical treatment? What if something that I thought happened only to others befell me? Insurers, who work with large samples, calculate the probability of such an event and, hence, the possibility of them having to pay out a sum of money to mitigate, to the extent possible, the effects of that disaster. However, the possibility of you undergoing some kind of expensive medical treatment during your lifetime is far more likely than you dying suddenly or your house burning down. Given that costs at private healthcare facilities, where you are most likely to land up, is high, and, doubling every four years 10 months or so, the rest of your money life could easily go out of whack if you had to incur such expenses. Just 12 per cent of India's population is covered with some sort of health insurance. Pared to the bone, for a comparatively small price, health insu...

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now