The necessity for insurance today is paramount and this is due to the fact that we live in an economically uncertain world and one never knows when financial help is required. Insurance acts as a safety blanket and protects customers from various issues that may arise. Insurance plans are of various types based on the requirement. The most commonly acquire policies are Life Insurance policies, Health Insurance Policies, among others.
However, there are other insurance policies that are quite specific in nature and correspond to certain unique requirements. These types of policies are procured by customers who require cover only for certain issues and not for generic ones life life and health. One of this is the Liability Insurance.
Liability Insurance Overview:
Liability insurance is a policy that offers protection to businesses and individuals from risk that they may be held legally or sued for negligence, malpractice or injury. This insurance policy protects the insured from legal payouts and costs for which the policyholder is deemed to be responsible. However, contractual liabilities and intentional damage are usually not covered as part of this policy.
This policy was originally created by companies or individuals who experienced common risks and hence created a fund to help pay for each other’s issues regarding this. These policies offer cover against their party claims as the payment will not be for the insured to the person who has been affected by the damage caused. In case a claim is made then the policy provider will have to defend the policyholder.
Why is Liability Insurance Required?
This type of an insurance policy is generally procured by companies or individuals who may be held liable, legally for injuries or other issues. This especially the case for hospitals, doctors or even business owners. An example would be, if a product manufacturer sells products that have been faulty or causes damage to other’s products, then he/she may be sued for the damages caused. Procuring a liability insurance will cover the manufacturer from ensuing legal costs.
Liability insurance is one part of the general insurance policy itself under the risk transference category. In many countries, liability insurance is mandatory especially for drivers of public transport vehicles. The scope of this form of insurance in India has been defined by the Public Liability Insurance Act of 1991.
Types of Liability Insurance Plan:
There are number of liability insurance policies available for customers based on their line of work and requirements. The most common forms of Liability insurance are Public,Product, Employers and Third-party liability.
- Public Liability Insurance
Although only certain countries have made this type of an insurance mandatory, most industries, especially those that have an affect on third parties such as visitors, trespassers, etc. Regardless of whether it is mandatory or not, most companies procure it so as to avoid unnecessary risk.
Certain small industries do not procure liability insurance policies as the premium is quite high, however, in the event of any claims, the legal costs will usually outweigh the premium costs. Therefore, procuring this policy is usually more prudent. This risk increases exponentially when these locations are shopping centres, theatres, clubs etc and areas where sporting events are held and places that allow consumption of alcohol.
In cases where the risk is extremely high, policy providers either refuse to insure these liabilities or charge an exorbitant premium.
- Product Liability
This is again not a compulsory insurance requirement in many countries, but it is highly important. This is procured by companies whose products are widely used such as chemicals, tobacco, medical products, food, recreational products and others.
- Employer Liability
This type offers cover to liabilities that an employer may incur if an employee is injured during his/her employment due to the job. Sometimes, companies do not deem this as important but if faced with a claim, they might be driven to bankruptcy.
- Third-Party Liability
This policy covers damages caused by the insured to another. The insured is considered as the first party, the insurance company is the second and the third is the injured or the person/company making the claims.
- How is the Premium Amount Decided?
The premium that is to be paid by the insured will be worked out using the base rate based on the insurance company’s needs and assessments. Another factor that is taken into consideration is the amount of risk that the company and its products come with. Higher the risk, higher is the premium to be paid.
Claim history, size of the risk and the company’s approach to the risk are additional factors.
While deciding the premium amount, insurance companies take into consideration the environment, number of claims made previously and their business record.
Companies Providing Liability Insurance Policy are:
There are a number of companies within India that provide different forms of liability insurance covers. Some of these are -
- HDFC Ergo Commercial General Liability - this insurance policy provides protection against claims of property damage or bodily injury for which the company is liable.
- ICICI Lombard offers numerous liabilities insurance covers to suit business requirements.
- Bharti AXA Commercial General Liability Policy offers cover for liabilities that are a result of business processes and operations.
- TATA AIG offers a Commercial General Liability Insurance Policy that covers third party liabilities that are a result of business operations.
Liability Insurance Claim Process:
The claims process varies from one company to the other. There is generally a form to be filled for the same post which all necessary documents will have to be provided. However, when it comes to liabilities it is not as simple. There may be court cases or an out-of-court settlement. The claims process will be different based on what the claim is being made for.
Liability Insurance FAQs:
- What is Liability insurance?
Liability insurance is a policy that offers cover to businesses/individuals and companies in case of legal hassles and if they are sued due to harm caused to another person by their products and services.
- What is not covered under this insurance policy?
Intentional damage and contractual liabilities are not covered by a liabilities insurance policy.
- What are the different types of liabilities insurance available?
There are a number of liabilities insurance policy available. These include third party liability, public liability, product liability, employer liability, professional liabilities, industrial risks and so on.
- What companies in India provide liabilities insurance?
Among others, ICICI Lombard, TATA AIG and Bharti AXA provide customers with a liabilities insurance, among others.
- Can Chartered Accountants avail a liabilities insurance? If so, what kind?
Yes, chartered accounts can avail a liabilities insurance. They will have to avail a professional liability insurance.