Burns & Wilcox Agents Market Source

the lowdown on
products liability

President & CEO, The Navigators Group, Inc.

an inside look at What’s Driving this important
segment of the casualty market

how is products liability different from some of the more traditional risks?

Products Liability differs from other casualty products in several major ways; first, the nature of Products Liability exposure results in a long period of time in which losses may develop. This long-tail nature means there is potential for claims years after a product is placed into the stream of commerce. During that time, courts may develop liability theories, new legislation may pass and technology may change dramatically. Best practices that applied to a product line in 1980 may no longer apply in 2011. Secondly, the underwriter must evaluate exposures not merely from the intended use of the product, but also from both unintentional and intentional misuse. Thirdly, a company’s Products Liability exposure can vary based upon who supplies the product. For example, the potential liability for a wholesaler of bicycles may be different for products manufactured in the United States than for those manufactured outside the United States, for whom the manufacturer may have inadequate insurance and no meaningful assets in the United States.

from your perspective, how competitive is the products liability business?

Currently, the Products Liability marketplace is quite competitive. There are many higher-hazard risks being written for a fraction of what they should be priced for. This mismatch in determining adequate prices generally stems from not evaluating the ultimate exposures, including misuse.

Do agents need any special training in selling this line?

More than training, it is essential to understand the client’s business and entire suite of products — past, present, and future. A clear understanding of the business of the policyholder is needed to effectively insure Products Liability. A thorough examination of the inherent risks, controls, and safety-related product features is a starting point. Understanding war-ranties and safety-related instructions is also essential. Researching incidents involving Products Liability, product recall, and safety-related incidence for related product manufacturers is needed as well. It’s all about understanding the risk so adequate coverage can be crafted.

is it a profitable line?

Our belief is that the U.S. prop-erty/casualty industry as a whole does not generate an underwriting profit in Products Liability. The best performers tend to be specialist carriers that operate within the excess & surplus lines market.

We are seeing a replacement of manufacturing risks with risks importing product from overseas manufacturers… examples include lead in toys, melamine in food products, and defective drywall.

have you seen a decrease in products liability sales as a result of more manufacturing moving overseas?

The nature of Products Liability claims is evolving as the U.S. economy evolves. We are seeing a replacement of manufacturing risks with risks importing product from overseas manufacturers. This poses additional risks, since inspection and quality control regimens overseas tend to be far less stringent than in the United States, which increases exposure to ultimate consumers. Examples include lead in toys, melamine in food products, and defective drywall.

What new types of businesses are popping up with a need for products liability coverage?

Life sciences are a very significant emerging industry globally, with truly worldwide exposures. Clinical trials are conducted all over the world, and the contract research organizations that conduct them are not confined by geographic boundaries. Within more traditional products, we have been asked to insure new products ranging from electronic cigarettes to alternative energy products.

Which lines of products liability coverage have experienced the most growth in the last year?

Three big areas jump out for us: first, as I just mentioned, the life sciences business is rapidly expanding and needs global coverage. Medical technology hardware is another growth industry that will continue to expand as our aging population seeks to remain active at later stages of life. Military and defense-related products also have experienced growth over the last decade.