Like most commercial lines, the product liability insurance market is competitive this year.
“We expect to see pricing coming down—not necessarily due to anything unique to product liability, but just because of the current commercial marketplace,” says Jessalynn Suda, associate managing director at Burns & Wilcox. “We expect to see things continually softer for 2016.”
But it’s not just soft pricing changing the game in product liability. “Innovation is driving product development,” says Letha Heaton, vice president of marketing at Admiral Insurance Group, a W.R. Berkley Company. “The world is a different place than it was 20 years ago. I grew up in Detroit where everyone was making the same car with different fenders on it. That’s not the world we live in anymore.”
Here are four facts about product liability that may affect—and surprise—you and your commercial clients this year.
1) Market capacity is abundant. The notion of strict liability for products originated in the 1960s and gained momentum throughout the ’70s. As a result, the 1980s saw what Craig Stanovich, principal consultant at Austin & Stanovich Risk Managers, LLC in Holden, Massachusetts, calls “a product liability crisis.”
“Insurance companies were saying ‘we can’t sell product liability insurance to you’ for any number of reasons—they weren’t prepared,” Stanovich explains. “Like anything else, their pricing and their underwriting is based on historical norms. This change happened relatively quickly where now they were having all these claims they never anticipated.”
Insurance always takes some time to adjust to external forces, but now, “those days are pretty much gone,” Stanovich says. “Most insurers will write product liability for most relatively innocuous products. You just don’t hear the same kind of wringing of hands from the insurance industry about product liability anymore.”
Although some of the larger general liability claims involve products, “insurers know that and they have an idea of which ones tend to be more hazardous—which ones to avoid,” Stanovich explains. “You have to go to specialty markets for more hazardous products. That’s just the insurance world today.”
2) The source of the product matters—a lot. According to Diane McDonnell, senior underwriter, commercial insurance at Burns & Wilcox, insurers have become more hesitant to insure imported products—particularly those from China.
“We’re seeing submissions for things that had been insured with the standard market for a long time, and now they’re deciding they don’t want to stay on it because the product’s imported,” McDonnell says. “Insurance companies are paying a lot more attention to where those products are being made.”
Suda agrees, noting her company, Atain, is “especially leery” of imported products. “That’s not to say we can’t consider them, but if we are going to consider them, we want to ask some questions as to what the importer’s experience is with the product and how they can attest to the fact that it’s not a shoddy product,” she explains.
Be sure to ask your clients where their products are made. “I think some agents forget to ask that question,” McDonnell points out. “They can say, ‘He’s a distributor of these electronic products’—OK, but where are they coming from? Agents need to know what questions to ask. That way, they’ll have a better chance of writing the business.”
Along those same lines, you should also ask whether your clients have protection in place from the entity providing the product, such as a vendor additional insured endorsement or a hold harmless agreement.
“A lot of times, if you are a distributor and you’re buying a product from somebody, you can actually be named as additional insured on that manufacturer’s insurance policy,” Suda says. “If you’re just a distributor, you really shouldn’t be liable for somebody else’s product. It greatly decreases the price they’re paying for it if there’s protection from the manufacturer.”
3) Health and wellness is a booming product class. Curt Fletcher, senior vice president, underwriting and regional vice president – Washington at Admiral Insurance Group, a W.R. Berkley Company, says his company expects its health, nutrition and lifestyle product to probably double within the next two years in terms of premium.
“Estimating that the U.S. industry is about $1 billion, given its size and complexity, the nutrition product affords the excess & surplus lines segment an inordinate opportunity,” Fletcher says. “New products with no track records are what our industry does best.”
“Nutraceuticals have become a lot more popular,” McDonnell agrees. “People are branching off into their own businesses, whether it’s organic or vitamins, medical-related equipment or goods—we’re seeing a lot more of all of that. Those are growing industries, so that would be a sales opportunity if agents decided to focus on those areas.”
New health and wellness developments for product liability are also happening in the mobile app space. Last year, the Federal Drug Administration started classifying many fitness apps as “mobile medical applications.” Apps intended to serve as an accessory to a regulated medical device or transform a mobile platform into a regulated medical device now face different levels of FDA regulation based on their purpose.
While Suda says her company’s appetite “isn’t quite there yet,” technology examples abound “where you’re on the borderline of professional liability vs. product liability,” she says. “When is it somebody’s programming mistake vs. when is it an actual product that you’re selling? That’s a new thing we’re seeing.”
4) You probably don’t need extra professional liability coverage. If your client manufactures products, they might also design them—which might give you the impression that you need to help them secure professional liability coverage in addition to a product liability policy. However, “the CGL policy doesn’t exclude professional liability for products,” Stanovich points out.
According to Stanovich, when a product causes bodily injury or property damage, the resulting claim typically alleges negligent design or assembly, failure to give instructions and more. “Failure to design it properly is part of product liability coverage,” he explains. “In other words, you don’t need specific design coverage—unless, of course, you’re offering design services to someone else.”
For example, if a business hires mechanical engineers to design products and sells those design services, “that’s one thing,” Stanovich says. “But when your design services are like most manufacturers, the notion that design liability in the context of a product requires separate professional liability is usually not the case. There are exceptions to that, but it’s usually not the case.”
For details about discontinued product coverage, keep an eye on IAmagazine.com and upcoming editions of the Markets Pulse e-newsletter.
Jacquelyn Connelly is IA senior editor.