Product liability insurance

If you’re a manufacturer, a retailer or you sell physical goods, then there’s always a risk that your products can cause personal injury or property damage. This is where product liability insurance comes in.

What is product liability insurance?

Product liability insurance provides cover for people who manufacture, distribute or sell products and protects you against any resulting financial damages. It’s often bundled with public liability cover.

What does product liability insurance cover?

Product liability insurance protects businesses that sell products from lawsuits that claim a product has caused injury or damage.

What expenses are covered?

This type of insurance helps you pay for your defence and for any money you may end up owing as a result of damages (if any).

Product liability insurance is a close cousin of public liability insurance, which covers damages not caused by products. In fact, many policies combine the two into one, simply called “liability” insurance.

Do I need product liability insurance?

While it’s not mandatory, product liability is strongly encouraged for businesses involved in the life cycle of a product. This can include parties that are directly or indirectly responsible for the damage. Here’s who it could include:

As you can see, many people could be liable for a faulty product. That’s because lawyers will try to determine who’s responsible for the product failure and that blame does not always lie with the same party. For example, an electrician installing a power point in a home may not have created or imported the products used but they could still be liable for claims if they didn’t install them properly.

How much is product liability insurance?

The cost of your product liability cover depends on your unique circumstances. The insurer will work out a quote based on how likely they think they’ll be on the hook for a claim related to the products you sell.

Your cost could be anywhere from a few hundred to tens of thousands of pounds per year, based on the following factors:

• What types of products you sell. Someone selling pillows is likely to pay less than someone selling hunting knives, all else being equal.
• How many products you move. The higher the volume of products you sell, the more likely someone could get injured and the higher your premiums will be. It’s a numbers game.
• Where you are in the product chain. A retailer is less likely to be at fault than the manufacturer would be for a faulty item, meaning retailers would pay less as far as that goes.
• The structure of your policy. You can decrease the cost of your policy by choosing higher out-of-pocket costs (excess) and lower benefit limits, and vice versa.
• Your claims history. If you’ve been found to be at fault for product damages in the past, you’re probably going to pay more than a similar business that hasn’t.

Here are a few tips on how to avoid a claim

While you could receive a benefit in a claim, it’s often better to avoid the hassle of making a claim in the first place.

As we’ve seen, the blame for a faulty product can lie anywhere along the chain of businesses that ultimately get that product to the customer. Here are some tips that will help you avoid a claim, wherever you are in that chain:

• Think safety first. Make sure product safety is central to the company’s operations.
• Don’t break the law. When designing, manufacturing and selling products, make sure you follow all relevant legal guidelines related to safety.
• Give clear warnings and instructions. Place the appropriate warnings on your products (such as age limitations) and make sure the usage instructions are written clearly.
• Maintain quality control. Have a system in place that allows you to detect imperfect product units.
• Train the sales and marketing teams. These teams should be able to explain how the product works, how to use it and if it poses any safety risks. They can also serve as a field service that can detect trends, identify potential hazards and help resolve safety concerns before they blow up.
• Maintain vigilance in the supply chain. You can be responsible for faulty parts, especially if the part supplier is overseas. Make sure all parts adhere to design specifications.
• Have a legal team in place. Make sure your legal team is familiar with rules and regulations surrounding your product and what you are and aren’t responsible for regarding how customers use your product.
• Keep good records. If you’ve taken great care to design, manufacture and sell your products, courts and juries should respond favourably to documentation that proves this.

Frequently asked questions

• How do I compare product liability insurance policies?

  Along with choosing the lowest priced cover, you’ll want to make sure you’re not giving up anything important. Once you’ve found a few quotes for policies within your budget, you’ll want to take a close look at the differences.

  Here are some tips to help you home in on the right policy for you:

  • Is the insurer strong financially? You don’t want your insurer going bankrupt mid-claim.
  • How is the customer service? Check some online reviews and see how others describe their experiences with the insurer.
  • Does it have a wide selection of products? Business insurance consists of many types of cover. Make sure your insurer offers the selection you need.
  • Is the insurer flexible? If your business is constantly changing or poised to grow, you’ll want an insurer that can adjust your policy on the fly to accurately reflect your business conditions at any given time.
  • What is the claims process like? Make sure you’re happy with the claims process including any time limits for claiming, the time it takes to decide on a claim and to pay it, the number of steps involved in making a claim and what support is available during the claims process.
  • Are there any additional benefits? Check to see if the insurer offers any other benefits. For example, some insurers will offer loyalty discounts for customers who’ve been with them for a number of years.
  • What isn’t covered? Every insurer has a set of situations listed where they won’t pay a claim. Most of these will be similar from insurer to insurer, but there may be small differences that have big implications for some businesses. Read these exclusions carefully.

• How can I save best on product liability cover?

  Although it’s probably not a good idea to cut corners just to save a buck or two on product liability insurance, there are still ways you can save some money. Here’s how:

  • Use a broker. A broker knows all the ins and outs of business insurance and has relationships with multiple insurers. You tell them what you need and they’ll seek out the best fit in terms of value and cost. Using a broker may not only save you money, it may also save you a lot of time going from insurer to insurer yourself.
  • Increase your out-of-pocket expenses. This is called your excess, or the amount you agree to pay for each successful claim. The more you agree to pay, the more your premiums go down. Just make sure it’s an amount you’re comfortable paying should you ever need to claim.
  • Get a bundled deal. Product liability is one of many types of business insurance and it’s almost certain you’ll need a few more (building and contents, theft, professional indemnity, etc). Business insurance is highly customisable, so it makes sense to go through only one insurer who can customise the perfect solution for you. You’ll probably get a discount for going this route.

• Is product liability insurance tax-deductible?

  You can deduct the costs of product liability insurance from your taxes because they are considered a business expense. Your broker or insurer will send you a tax invoice each year, depending on who sold you the policy.