Product Liability Insurance

product-liability-insurance-Do you sell physical goods and products? Protect yourself with product liability insurance.

If you're a manufacturer, a retailer or you sell physical goods then you may be exposed to 'product liability'.

In 2017 alone, 30,000 product and public liability claims for accidents occurring that year were reported in Australia1. Product liability claims can occur for a variety of reasons from spoilt food that causes sick patrons all the way through to a faulty camera that injures a customer.

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

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Some useful tips

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.

Read the guide: What is public 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:

  • Designers, engineers and developers
  • Parts suppliers
  • Product manufacturers
  • Importers, distributors and wholesalers
  • Brands who use only their name to sell products
  • Retailers
  • Installers

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.

Do you still need product liability if you're not a manufacturer

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 dollars 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.

Want to avoid a claim? Here are a few tips

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, 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.

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Picture: Shutterstock

References

  1. https://www.apra.gov.au/sites/default/files/Table%25202%2520-%2520PPL.xlsx

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8 Responses

  1. Default Gravatar
    PariNovember 27, 2017

    Hi, I make my own nail polishes and beauty products, do you have any recommendation for product liability insurance? I already have public liability insurance. TIA

    • Avatarfinder Customer Care
      JudithNovember 28, 2017Staff

      Hi Pari,

      I hope you are doing fine today. Thanks for your question.

      As we are a comparison website, I cannot recommend or suggest a specific option for you, as your decision would entirely depend on your needs.

      On the page you are viewing, you may fill out the form for you to receive a quote for product liability insurance.

      I hope this helps.

      Cheers,
      Judith

  2. Default Gravatar
    RenaeSeptember 28, 2017

    If we want to be a distributor for a certain camera brand from China. Apart from product liability what other insurance do we need? I would like a quote please. Thank you

    • Avatarfinder Customer Care
      MaySeptember 29, 2017Staff

      Hi Renae,

      Thank you for your inquiry.

      As we are a comparison website, I’m afraid we may not be able to recommend a specific insurance to you as the best option would depend entirely on your situation by taking into account the type of your business, your cover needs and the insurance you can afford. Nevertheless, there are types of business insurances mentioned on this page that you’d want to check. If you’d like to get a personalised business insurance quote, best to fill out the form from that same page and click on the green “Enquire Now” button.

      Cheers,
      May

  3. Default Gravatar
    fran.dFebruary 21, 2014

    Hello. I am wanting to start a small home based business making baby wash, lotions etc. that a naturally based. I have developed the product and now am looking at the next steps. It will be an online business with myself doing everything and not employing anyone. What type of insurance will I need to start with? and around about what will I need to pay?

    • Avatarfinder Customer Care
      WilliamFebruary 21, 2014Staff

      Hi Fran,

      Thank you for your enquiry. Considering you are manufacturing your own product to distribute to the public, it would definitely be worth considering taking out product liability cover to offer protection in the event that a claim is made against you. It is not possible to provide you with an estimate for what you will pay based on this information alone as many other factors will need to be considered. finder.com.au is not currently partnered with any business insurance providers but we can recommend the business insurance broker austbrokers.com.au/

      Thanks again for your enquiry and apologies for not being able to provide more assistance at this stage.

  4. Default Gravatar
    alan.yapFebruary 17, 2014

    Hi,

    I am new in business and just started sourcing out for product liability insurance for my business. I am selling security products importing from China and resell it in Australia. However, all of the insurance companies I called advise that they do not offer product liability insurance to anyone that import Electronic products from overseas especially security products (cctv, camera gadgets etc) because I am considered as the manufacturer of the products if I’m importer. The insurance companies advise that we should go for insurance brokers to source for the product liability insurance. We have being sourcing for the past few months and it appears that anyone that sell imported security products from overseas will not be able to cover the business in terms of product liability. Do finder.com.au know of any insurance companies that offer this type of product liability insurance.
    Your help is much appreciated.

    Al

    • Avatarfinder Customer Care
      WilliamFebruary 18, 2014Staff

      Hi Alan,

      Thank you for your enquiry. Unfortunately, most insurers will exclude cover for products that are imported from overseas. Finder does not currently feature any Business Insurance providers that will provide cover for this type of product distribution. You may wish to make an enquiry with the Australian General Insurance Broker Group Austbrokers.com.au

      We apologise for not being able to provide further assistance with your enquiry at this stage.

      Thanks again for your enquiry and all the best.

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