Public Liability Insurance: Insurers Must Become Competitive, Says N Rangachary, First Chairman of IRDAI
Moneylife Digital Team 11 March 2023
"A very interesting subject - worth pursuing in the background of India's economic and industrial development. If we want to be a world player, our insurance companies must be enabled to be competitive in this business," says N Rangachary, first chairman of the Insurance Regulatory and Development Authority of India (IRDAI) about Moneylife Foundation’s report on ‘Public Liability Insurance in India' which was released last week. Read more here: Moneylife Foundation's Report Seeks Mandatory Public Liability Insurance in India for All Public Spaces 
While the subject of public liability is very complicated, Mr Rangachary, in a detailed response to the report, believes it is worth pursuing for India's economic and industrial development. 
He said, the awareness and spread of liability insurance in India is determined by many factors; some of those are our appreciation of the risk involved in business or any activity and the risk that is sought to be covered. It also depends on the dimension of the risk, whether the risk is amenable to be treated as an insurance product and the capacity of the insurance market to absorb such risks. Further, there is the need for a suitable risk cover which is available to all those who deal with liability. 
Mr Rangachary says that once the risk to be covered by a public liability policy is identified, it needs to be uniformly applied to everyone – whether it be the government, public or the private sector. 
Public liability risk denotes one arising out of matters or events in the public domain and, hence, its applicability to members of the public is fairly large. Public liability normally arises in the course of manufacturing, industrial, service-oriented, financial activities etc. The public liability law that we have today, which was passed in 1991, is severely restricted to those units that operate in hazardous materials. 
It should first be ensured that insurance is the most apt solution to cover a risk. An insurance policy cannot cover all risks and its applicability is conditioned by factors that would include the nature of the activity, the risk that emanates from these, whether all or some of these risks could be covered by an insurance policy, etc. 
For liability insurance to work, the market must be fully aware of the contours of the business activity from which the risk would emanate; further every participant must be fully aware of their rights and obligations relative to the activity and risk involved as well as actions needed for containment of the risk, and finally the pricing of list in a suitable liability cover. 
The concept of public liability has not developed in India because of our limitations. The thought of having risk cover normally works well in markets that are free, where a businesses are fully aware of their risks and liabilities in every engagement and the user of services (customers or the public) are fully aware of their rights to compensation in the event of a problem. 
Until about two decade ago the insurance business was nationalised and a free market and availability of a wide spectrum of products has happened only over the past two decades. The operation of businesses and the attitude of people as consumers has also changed. At a time when people borrow to finance homes and purchase of consumer products, it is all the more important for them to be concerned about covering their risks with a proper liability cover. 
For this to work, we need multiple products for various requirements. The pricing of products must follow actuarial principles and we should encourage general insurance companies to go in for this business. 
Overall, this is an interesting subject - worth pursuing in the background of India's economies and industrial development. If we want to be a world player, our insurance companies must be enabled to offer good liability products and a system of claims handling that ensures that the benefit reaches the people for whom it is intended. 
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