Selling or manufacturing products? Why a Product Liability insurance policy might be a good idea.
You’ve got an awesome new product out to market. You’ve spent lots of time refining the design, features and marketing material. Or maybe you’re not even the manufacturer of the product, but a retailer or wholesaler of a really cool new product. What could possibly go wrong?
Unfortunately, risks are all around. Perhaps one of the biggest risks associated with manufacturing or selling products is that your consumers or physical assets may be harmed, damaged or hurt as a result of using your product. Even if you are not the manufacturer, you may be sued for this. Whilst you may be able to claim it back from the actual manufacturer, there is an upfront cost for you that you will have to bear.
What exactly can cause these risks?
The most common causes are:
1. Product design – a defect in the design meaning that the issue is present even before the product is manufactured.
2. Manufacturing defect – this could be due to missing components, incorrect components or something else went wrong during the assembly of the product.
3. Labelling / marketing defect – incorrect labelling, safety warnings or instructions on how to use the product.
What do insurers look for when assessing your risk?
Having insurance in place does not mean you can relax on your risk management processes. You should anyway have quality controls in place especially when you are not the manufacturer and depend on various vendors to provide the product to you. The insurers will want to know about these control processes. Likewise, they will want to know whether you have a product recall plan in place. This is important in case you realise there is an issue with products out in the market. Knowing which batches of products were sold to which customers allows you to be able to communicate to them to recall the product.
Any sort of product certifications or test reports that verify the safety and quality of the product will also help insurers in understanding the safety measures of your product, and potentially ease any concerns.
Insurers will look at the geography of where your revenue mostly comes from. The US, Europe and Australia are generally more litigious in nature than Asia.
If you engage with vendors and suppliers, you should ask them whether they have their own Product Liability insurance in place. This will help you in getting your own policy in place, as the insurer will know that they can claim back some of the damages from your suppliers’ policies.
Types of companies that should be seriously considering a Product Liability insurance policy:
It doesn’t matter if you are a B2C or B2B company, the risks still apply.
If you are a direct-to-consumer business, you may face lawsuits directly from your customers. And if you are a supplier to other businesses, you may face lawsuits from the retailers of your products. Your insurer may be able to claim part of the insurance claim back from your own suppliers, but there will still be some legal defence costs that you will incur which your own product liability insurance will cover.
Any company that sells a physical product including but not limited to:
- Food-tech companies that are innovating on new food products from alternative proteins to new generation of appliances and cookware
- Food companies that sell packaged food products. Note that there is a common misconception that a Public Liability policy includes coverage for Food Poisoning claims. This is usually excluded when the insurance company realises that you are a food company selling packaged food products. You will need to take out a Product Liability policy to cover this risk.
- IoT companies developing and selling devices. Note the potential risk of battery-operated devices that may explode
- Companies selling any sort of physical product through online marketplaces like Amazon, Lazada, Shopee etc.
Ready to get protected?
Once you are ready to launch your product into the market, or if you already have products in the market, get in touch with us to help you protect your business. We can take you through the steps to get you covered right away. Contact us at firstname.lastname@example.org.