Product Liability: Emerging Risks Indicate Market Growth
By: Olivia Overman
Like most commercial lines, the product liability market has been negatively impacted by the global pandemic. With increased rates and reduced capacity along with an uncertain economic outlook and political instability, the current climate is creating a challenging market for agents, clients and insurers alike. Nevertheless, the product liability market is expected to grow, according to a recent report by MarketWatch.
Certain sectors of the product liability market are showing opportunities for significant growth, helping accelerate the market.
“In the U.S. alone, there is over $600 billion in e-commerce revenue with over 24 million e-commerce sites that continue to show growth as brick-and-mortar stores’ sales decline and are more heavily impacted by COVID-19,” says Dan Smyrl, executive vice president, underwriting at Admiral Insurance Group, a Berkley Company. “More and more people, especially millennials and Generation Z, prefer working for themselves and generating their own profit.”
While growth is expected, it is imperative to comprehend that products are more impacted by the economic environment. New businesses have a failure rate which is “roughly 50% in the first five years,” Smyrl says.
More products are becoming part of the Internet of Things and experts estimate that by 2025 more than 75 billion connected devices, from cars to security alarms, will be connected to the web.
Due to “the necessity of being able to market and transact with customers virtually, there is more potential to become a victim of data breach and cybercrimes when using electronic, web-based platforms,” Smyrl says. “Security is extremely important, as well as making sure [your clients] have the right insurance coverage.”
COVID-19 is accelerating a growing reliance on technology in almost every sector of the economy. In particular, the pandemic has forced a shift in the life sciences arena.
“Never before has the life science industry worked as cohesively in trying to develop treatments for COVID-19,” says Donnacha Smyth, head of excess casualty, AXA XL. “There is a truly global effort underway with obvious advantages for the companies that are part of the risk. Managing the logistics of the vaccine delivery will be a challenge, but work is underway to ensure companies are ready.”
As with many of today’s emerging risks, product liability is pushed into the foreground when insuring new products, “including 3D printing, artificial intelligence and various environmental issues, such as phthalates and other common plasticizers, which are increasingly proving to be detrimental to human and environmental health,” says Cary Anne Melton, senior vice president, excess casualty and emerging hazards, Chubb. “It’s important that businesses understand the formulation of the products they sell and ensure that their product liability coverage does not contain exclusions for additives used in the manufacturing process.”
Another area of growth is the global CBD market. Estimated at $9.3 billion in 2020, the market is expected to grow at a compound annual growth rate of 22.2% from 2019 to 2025 to reach $23.6 billion by 2025, according to a Grand View Research report. “Few markets have been able to address the exposures and are comfortable navigating this legal environment,” Smyrl says. “We work with our wholesale partners to ensure their customers understand the exposures so they can provide custom coverage solutions to address their needs.”
The product liability market is as varied as the products it covers and “manufacturers of consumer products and building materials are likely feeling the impact of the hard market,” Melton says. “Coverage for more innocuous products is widely available and affordable, and primary product liability rates have not risen nearly as much as auto liability and premises rates.”
While “many insurance carriers are hesitant to provide coverage for new ventures and risks with no prior experience, it is important to get as much information as possible to demonstrate the insured’s knowledge and background related to their new operation,” Smyrl adds.
Olivia Overman is IA content editor.
This article was published in the January 2021 issue of Independent Agent magazine.
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