Are you a small business that designs, manufactures, repairs or sells something? If so, you may be wondering, what is product liability insurance? Well, product liability insurance coverage is a form of business insurance designed to protect companies if a product they sell causes bodily injury or property damage. It may be a prerequisite for many product supply contracts, or a requirement for B2B relationships involving the selling, designing or production of a product.
Even businesses selling directly to consumers should still consider product liability as an important coverage to help protect the business. If a customer was hurt or became ill as a result of your product, the business could be liable to cover their financial losses as a result of the issue, whether that be lost earnings, medical expenses or otherwise.
The cover is limited to the value of the policy, which for smaller businesses or those who are self-employed is usually £500,000 – £2,000,000. More coverage is available if required, so business owners must take stock of how they’d like to protect their business; talking to an insurer or broker is useful for addressing any questions or concerns.
Product liability is often sold with public liability, and some insurers even package product liability onto a public liability policy at no additional cost – a great incentive for the especially cost-conscious insurance customers. This can be a great benefit and will save on paperwork come renewal time as there will only be one document to sign. Make sure the product liability is fit for purpose, though, if it’s tacked onto a public liability product.
Cost-wise, these ‘dual’ policies generally come in around the £120-£130 mark for a typical small business, but costs can be more or less than average depending on factors such as the size of the business, the location and annual turnover, among other things.
Who needs product liability insurance?
A business that sells a product to customers that could cause injury or illness should hold product liability insurance. If you sell any form of material product, it’s probably worth having a policy just to be on the safe side, as you never know what can go wrong and what the implications could be.
This could be something as obvious as butchers or fishmongers, where a mislabelled item might cause someone to become unwell due to unlisted allergies or an incorrect best before date, or something more subtle, like a children’s toy company where loose parts might become a choking hazard.
Businesses bidding to become a provider to a larger business for a product they’ll need regularly or use a lot (say, supplying meat to a national restaurant chain or delivering saws to a large woodworking business) will also need product liability; in fact it is likely to be a requirement of the contract.
How much product liability insurance do I need?
This entirely depends on the size of the business and the products it produces. Many who are self-employed or operate a small business find that £500,000 – £2,000,000 worth of product liability is sufficient to deal with any claims that might come about as a result of an issue with their product, however larger businesses (or any business working with especially dangerous products) might want to consider more.
When it comes to purchasing a policy, have a chat with an insurer or broker to see what their thoughts are regarding coverage limits. While of course, they’ll be incentivized to get you to purchase higher coverage amounts, they can still provide valuable insights into what coverage amounts similar businesses take out.
Similarly, try asking some friendly competitors what levels they opted for, and if they felt it was sufficient, too little or too much. They may even be able to provide a valuable recommendation on a good insurer to go with, saving the hassle of having to decide between a few and rely on online reviews.
How much is product liability insurance UK?
Product liability in the UK is rarely sold on its own, and is instead often packaged with public liability insurance at a cost of around £120-£130 annually. Keep in mind this value is entirely dependent on the size of the business and the risk associated with the product a business produces. For example, a knife seller would certainly be charged more than someone making small paper ornaments.
One also needs to decide on the amount of coverage required, which should be based on the likelihood of something going wrong and the costs associated with any issue. Consider if a product could cause serious injury or illness, cause someone to take time off of work or prevent a business from operating properly. If the answer is yes, a higher limit might be preferable to help avoid unnecessary risk. And product liability insurance premiums usually get cheaper for each additional £1M of cover, making higher limits more affordable than one might think.