Running a business comes with many risks. Apart from the vicious cycle of profit and loss, your business must ensure the safety of its products to avoid harming clients. You can be sued if your product causes harm to a customer or their property. For example, if the food you provide makes someone sick or the bike you wholesale is involved in accident that leads to injuries.
Enter product liability insurance.
As the name suggests, product liability insurance can protect you and your business against claims against you from the damages or injuries caused by your products.
Below are some important facts about product liability and how it can benefit your business.
Protecting Your Business:
Product liability claims are expensive. You never know when the bike you wholesale will be involved in a bad accident – and the rider blames a faulty bike component. You never know when a client complains that your delicious pasta has given them food poisoning. Accidents, and how clients will react, are unpredictable.
That is why you are advised to opt for product liability insurance. It can cover your business against claims of injury and property damage arising from the use of a product sold by you. It protects your business by ensuring that if this arises, you may not need to pay costs out of your pocket.
Whether you are a supplier or a manufacturer, having product liability insurance is important for your venture. Even with products that are quality checked, there is always a risk. Claims of damage and injury from defective products can be huge, and even if you are ultimately cleared, you still have to pay legal costs to defend yourself along the way , if you are not covered by product liability insurance.
What You Need to Know About Product Liability Insurance
Understanding the Cost of Product Liability Insurance:
In Australia, the cost of your product liability varies based on the factors below.
- Types of Products You Sell
Bed sheets are less likely to be risky than knives, thereby attracting lower premiums.
- Sales Volume
The more products you sell, the more likely someone could be harmed and the higher your premiums will go.
- The amount of cover
Small business owners typically elect $5 million, $10 million or $20 million cover.
Excesses for small business product liability policies start at $250 and rise into the $1000’s. Higher excesses can help lower the premium or can be mandated by insurers if you have had several claims.
- Your Claims History:
If you have been accused of product fault in the past, you are likely to pay more than the same business with a clean record.
Who Needs Product Liability Insurance
While product liability insurance is not compulsory in Australia for most industries, it is essential for product-based businesses. This can include the entities that are directly or indirectly involved with the supply of a product. Based on this, it includes…
- Importers, Distributors and Wholesalers
What is Not Covered by Product Liability Insurance?
- Products that contain asbestos
- Pre-existing faults before you opted for cover
- Damaged property owned or rented by you.
- Costsrelated to any guarantee or warranty associated with the product.
- Costsassociated with the loss of electronic data.
How to Avoid a Product Liability Claim
While product liability may pay for the costs for damage and injuries caused by your products, it is better if you take preventative action in the first place.
- Product safety should be the top focus for your business.
- Place very clear warnings and instructions on your products.
- Test and refine quality control to minimize the production of faulty products.
- Monitor the supply chain. Importers are held liable even if the supplier is based overseas.
*Important: Cover may be available subject to meeting insurers underwriting criteria. Some of the covers listed may or may not be available or may have limitations or exclusions. Cover inclusions vary significantly from insurer to insurer. DO NOT rely upon the above. Check your policy schedule carefully for inclusions and exclusions and limitations. Talk to a business insurance broker for more information.
Romit Malhotra is the brand representative of Smart Business Insurance, a leading Australian insurance broker. A big foodie, he loves to travel the world. Also, a diligent businessman, Romit likes to pen down his thoughts on related topics whenever he finds some free time.