My small manufacturing business sells to companies in the U.S. and Canada. I've had inquiries from companies overseas who want to buy my products, but my product liability insurance doesn't extend globally. My current business owner's policy costs $500 a year. Quotes for adding the global liability were $5,000 annually. Can I expect to find a better price? —A.P., Windham, N.H.
Many small businesses are exposed to the risk of product liability claims, including manufacturers, vendors, suppliers, and exporters. These claims typically arise from real or alleged defects in design, manufacturing, labeling, warnings and warranties, and packaging. Claims can also arise from the storage, transportation, or handling of your products.
Robert Klein, an insurance expert and associate professor at the J. Mack Robinson College of Business at Georgia State University, says a $5,000 premium does not sound unreasonable. "Finding something cheaper could be difficult and entail more limitations than it would be worth," he says. "You could shop around, but you'd have to evaluate how much time you want to expend in saving maybe $2,000 or $3,000. I would assume that you'd like to stay with your existing insurer because a separate product liability policy with another company—even a reputable foreign company—could prove more expensive."
Klein suggests that you talk to the foreign companies that are interested in buying your products. Ask what they need in terms of manufacturer's product liability coverage, and whether they'd be willing to pay a little more to subsidize the cost of such coverage. If they are, you could adjust your pricing for foreign sales so that your extended insurance costs would be covered. "If these buyers are seriously concerned about product liability coverage and strongly interested in your firm's products, they might be willing to help in finding the least expensive coverage. If any of these buyers are large, they should have considerable resources to assist with insurance," Klein says.
"Global" Doesn't Always Mean Global
If you do decide to shop around for a cheaper premium, "provide as many details as possible to help you get the most accurate quote," says Catherine Weatherford, executive vice president and CEO of the National Association of Insurance Commissioners (NAIC). Some of the factors that affect the price of product liability insurance are the precise type of product you make or distribute, where you will be selling and what the tort environments are like in those countries, and whether you'll be selling directly or through a distributor. Be specific about which countries you'll be selling in. If you ask your insurance agent to quote "global coverage," that will likely result in a much higher premium than a quote that covers only a few particular countries, says Weatherford.
And be careful: Even "global" coverage may not be as comprehensive as it sounds. Some insurers may offer global coverage but only for lawsuits filed in U.S. courts. That may not be adequate if your company is subject to suits filed in foreign countries, Klein says. "If a company cannot defend itself or cover overseas judgments against it, any assets it has overseas, such as inventories or deposits, could be seized. Also, the company could be prohibited from further selling of its products in those countries." So look for broad coverage that will insure you against suits filed in foreign as well as U.S. courts.
Another way to reduce exposure is to use hold-harmless agreements with any overseas distributors. "You will also need to ensure that the country you want to expand into will recognize such hold-harmless agreements," Weatherford says.
You can find more tips and information about insurance for small businesses at www.InsureUonline.org/smallbusiness, an informational site sponsored by the NAIC.