Product Risks -Title

The goal of many companies is to provide a product that fills a market gap. Every day there is a new idea that converts into a product and meets a specific purpose. People decide which products to buy after examining both tangible and intangible attributes of a product. For example, taste, look, brand and price. All these attributes make a product successful or fail.

The most successful product takes years to create as they start with an idea, design, manufacturing and then selling. Each stage is as important as the other because one mistake can change the product from safe to dangerous. The companies intend for an ideal product to meet its purpose and be enjoyable to customers. However, due to one mistake or miscalculation, a product can harm or cause property damage to the consumers. These are the product risks, and claims and lawsuits immediately follow.

When a product goes wrong, any business associated with that product is liable to the claims. Therefore even if you are just selling a new trendy toy that harms a child, your business will be the first in line to be sued. Product risks are surprising and can transform into claims anytime. All companies working on or with products should buy insurance. Businesses should purchase all product insurances that deal with all product risks and post-claim actions.

What Are Product Risks? 

Product risks are the set of things that could go wrong while using the product or even after consuming the product. After a business launches products, it is hard or almost impossible to predict these risks. Even with months of testing the product, there is still a chance the product may harm the third party or damage third party property.

Businesses need to protect themselves from the more significant risks. Unfortunately, for even the most careful manufacturers, product claims happen. The main insurance business purchase is product liability insurance- which covers claims linked to product defects in case of bodily injury or property damage. However, there are a few more insurance extensions that are equally as important to businesses. The extensions include manufacturing E&O, product recall and public liability. These four insurances (including product liability) cover a company from all possible risks and cover the cost of actions taken after things go wrong.

What Insurances Are Needed To Deal With Product Risks?

Product Liability

Produt Risks-product liability

If your company manufactures or sells a product that has a defect and causes injury or property damage, your business could be held liable. A claim can arise from minor injuries to something big like property damage due to a  battery explosion. When we buy products, we automatically assume that they are safe to use and hope to enjoy them. Unfortunately, this is not always the case; thousands of accidents occur due to a badly designed or manufactured product. Product risks can lead to lawsuits and reputation damage. Typically, product claims arise from design defects, manufacturing defects or failure to warn.

For example, in 2018, Johnson & Johnson was accused of product defects as their talcum powder products were infected with asbestos and failed to warn consumers. Asbestos is a dangerous mineral that can cause skin and various health problems to the consumer. In addition, in June 2020, the court ordered Johnson & Johnson to pay USD 2.1 billion to women who claimed the company’s products caused them to develop ovarian cancer.

Product liability insurance is crucial to any product associated business that could face such situations. Product liability insurance covers legal costs and damages for the business due to the claims. Therefore, any company that manufactures, supplies or sells products should have product liability. However, product liability insurance coverage will not cover the cost of a product recall. Product liability insurance will also only cover claims arising from bodily injury or property damages and not negligence claims.

Manufacturers E&O

Manufacturing is one of the most essential stages in creating a product. The manufactures role is to understand the design and convert it to a tangible product.  Product manufacturing includes the use of various materials, assembling and testing. Most brands outsource their manufacturing stage to other businesses as it is cheaper and efficient. For example, even though Apple is a  famous American brand, they outsource the manufacturing of their iPhones to Asian companies. Getting outsourced as a manufacturer is great for a manufacturing business but also comes with risks. The manufacturing company will be liable for all the financial loss the brand may face due to the manufacturing process of the product.

Manufacturer E&OThe brand has the right to sue the manufacturing company if they believe there has been negligence. For example,  in a 2016 case, Rolex discovered their Air-King 116900 watches were numbered incorrectly by the manufacturing company; there were two ‘9’s. Hence, Rolex sued the manufacturer for profit loss and the additional replacement costs arising from the assembling defect.

A case like the above will result in the manufacturing company paying a significant amount for legal, compensation and replacement costs. Manufacturers E&O insurance is a specific professional liability insurance that covers manufacturing mistakes or negligent service resulting in a third party’s financial loss (client or an end-user). 

Product Recall

Selling millions of copies of a new product is normally an occasion to celebrate for a business. However, this is not always the case; there are times when selling millions of defective products can be a curse. A Product Recall is an act of removing a batch of products from the marketplace. The business has to use advertisements to inform customers of the defect, provide shipping costs and refund costs.

Product RecallA famous example is in 2010 Toyota announced a recall for its Corolla line of cars due to a defect in the car’s gas pedal. A plastic material in the pedal risked causing the gas pedal to get stuck in a position, resulting in uncontrolled acceleration. Toyota recalled 2.3 million cars for the manufacturing defect. This incident cost them billions of dollars to recall and also brand damage due to the claims.

Product risks like this make product recall insurance the perfect cover. Product recall insurance covers expenses associated with recalling a product. The insurance is usually one of the most popular extensions of product liability insurance. The insurance reimburses the company for financial losses sustained when advertising and recalling the products. These costs include customer notifications, shipping, storage, disposal and brand repair costs. It can save a company millions of dollars and reduce brand reputation damage.

Public Liability

Public Liability InsuranceCreating products don’t just happen in the air as we know; they are created in the design room, manufacturing factories and then sold in shops. Each one of these stages deals with third parties entering in and out. For example, the manufacturing & design companies will have their clients coming into the factory checking the goods, and a distributor will have all the customers. When third parties enter the work premises, there is always a risk of accidents occurring. These accidents include work premises injuring a third-party or property damage.

For example, a client enters a manufacturing factory to check fabric quality for a new clothing line. As he puts his hands on the assembly line, a machine accidently turns on and crushes the client’s hands. The manufacturing company will be responsible for the client’s injury and will have to pay him medical and compensation costs. The accidents could be anything from a ‘slip and fall’ to a machine explosion in the area.

Such risks are why every business should purchase public liability insurance. Public liability insurance protects companies if a third party sues the business. Third parties may allege that the business or its employee’s negligence caused them some type of bodily injury or property damage. Public liability will cover all legal costs and also pay for third parties recovery. In addition, it allows the business to run normally and avoid significant problems, protecting the owner financially and the brand itself.

 The Benefits Of Purchasing All Product Risk Insurances

Claims and lawsuits do arise from anywhere and at any moment. So however safe and successful you may think your product is, there might be a minor error that only a consumer may notice. All the above insurances help deal with the wide range of product risks that may occur.

 product risks benefitsHaving insurance has many benefits for a company and customers too. One of the essential benefits is cover for financial loss. All these insurances will cover specific unwanted expenditures and save considerable amounts after a claim.

Another long term benefit is brand reputation protection; each insurance will help a company avoid brand damage or assist in repairing brand damage. A company’s reputation is always an important factor to attract customers, and insurance companies understand that. The insurances will help the company move past claims so they can focus on the future.

Finally, the best benefit of having insurance is that it allows freedom to be creative and not worry about out-of-control factors. No company should worry about unpredictable claims when creating a product. These four insurance will have your back when things do unfortunately go wrong.

To Learn More about Product Insurances and get the best protection for your business against product risks, contact Red Asia Insurance.

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