Following the fire accident in a hospital in the eastern part of India in the recent past, many hospitals quickly purchased the errors and omissions (E&O) policy. The E&O policy provides cover against negligence, errors, omissions or wrongful acts in the workforce while performing one’s duties. It provides protection against liabilities arising out of large claims due to lapses on the part of one individual or individuals.
Due to the nature of the cover, this product used to be mostly availed by companies in sectors such as pharmaceuticals, IT, law firms, banks, real estate and architects, among others. General insurance company executives say now firms in the services, telecom and financial services sectors are also taking up the E&O cover.
K G Krishnamoorthy Rao, managing director and CEO of Future Generali India Insurance, says claims have also started coming in from this segment. While small claims can range from Rs 50,000 to Rs 1 lakh, bigger claims up to Rs 20-30 lakh can also be filed. The premium depends on the nature of the company, the sector in which it operates and its size. In some instances, companies with a large employee force may need a larger cover.
Also called professional indemnity (though some insurers have separate covers for E&O and professional indemnity, this cover not only protects a company but also its subsidiaries with respect to negligent acts, errors or omissions in the performance of professional services. The policy pays for legal expenses and damages and includes amounts that the insured is legally required to pay.
“Some cases of product defects that are harmful in nature have also been reported in India, especially in the consumer goods segment. Hence, it is crucial that the manufacturers have an E&O cover to protect themselves against legal liabilities. Companies in consumer goods space have started taking this cover now, since there is an increased consumer awareness about their rights and the number of complaints filed by them are also higher,” says the products head of a private general insurer.
According to Sanjay Datta, head of underwriting and claims at ICICI Lombard General Insurance, E&O as a cover is catching up among corporates. He says that premiums have been maintained at a stable rates, since claims are limited.
The E&O cover requirement changes from sector to sector. The IT sector, for example, may have performance or post-testing errors, while the medical sector has the most number of negligence-related errors and omissions where the cover required is much larger, since the human life associated risks are higher.
Recalling an earlier instance of a mobile phone manufacturer faced with some complaints of their cell-phone batteries bursting, the claim official of a public general insurer says that although the company may have a cover, human risks are a big liability.
"Even if there is an injury to a human life, which cripples their livelihood caused by a product-defect, the compensation can run into millions. While in the western world, the consumer courts are comparatively very active in these cases, Indian forums have also begun actively pursuing these causes. This poses higher risks for companies operating in these spaces," says the official quoted above.
A survey of 1,063 customers and 116 businesses in India in 2012 by global testing, certification, inspection and training provider TÜV SÜD said 83 per cent of consumer respondents in India have had experience with unsafe products. Among those who had experienced unsafe products, allergic reaction (44 per cent) and injuries due to faulty product design (41 per cent), were the most cited product safety issues.
At present, E&O covers come under the miscellaneous category of products in the general insurance industry. As a proportion of total business, it constitutes six to eight per cent of total product portfolio of the general insurers.