Product liability

In this chapter of our Annual Insurance Review 2019, we look at the main developments in 2018 and expected issues in 2019 for product liability

Key developments in 2018

Two government initiatives in 2018 have improved the outlook for insurers offering product liability cover.

In January, the Department for Business, Energy and Industrial Strategy (BEIS) announced the creation of a new national oversight body tasked with identifying consumer risks and managing responses to large-scale product recalls and repairs: the Office for Product Safety and Standards (OPSS). OPSS has set out a strategy to support manufacturers and retailers in taking rapid action in the event of any safety issues related to their products.

Then, in March, BEIS published a code of practice on consumer product safety-related recalls and other corrective actions (PAS 7100:2018).

PAS 7100:2018 is likely to be incorporated into a British Standard in the future. It sets out a code of practice to guide manufacturers, distributors and importers in dealing with product safety issues and to assist local authorities and regulators in advising on their legal responsibilities. A key plank of the code of practice is that businesses should prepare a Product Safety Incident Plan (PSIP) that covers: ensuring products are traceable; monitoring product safety; and being prepared to take corrective actions, such as issuing warnings, modifying a product or recalling it entirely.

These initiatives are intended to improve the ability to trace faulty products and correct them. If the initiatives work it is good news for insurers as there will be fewer products in the market risking injury and consequent product liability claims. We expect insurers in 2019 to be scrutinising insureds’ compliance with the recommendation to prepare PSIPs.

What to look out for in 2019

Against a backdrop of increasing globalisation, tempered by uncertainty over Brexit, we expect insurers in 2019 to focus increasingly on investigating the liability risks that lurk within supply chains.

At the time of writing, what does appear certain from Brexit is that 2019 will be a year in which product manufacturers are more likely to source components from third parties located in jurisdictions whose standards may be different from those of the UK. This could be because UK manufacturers choose to negotiate supply agreements with third parties outside the EU or because UK and EU manufacturing standards and regulations start to diverge. A supply contract agreed today may still be in place when the trading environment (and its associated regulations) looks very different.

At the same time, the general trend in recent years has been for supply chains to be lengthier and more global in nature as markets open up and products become more complex. The rise of a sophisticated manufacturing base in China, the BRIC economies and elsewhere means that UK manufacturers are incentivised to extend their supply chains well beyond our borders.

Any component in a product has the potential to cause injury to consumers. Injuries could arise from a range of issues, such as manufacturing errors, design faults, malicious tampering or failures in post-market surveillance. Insurers should work with the manufacturers and suppliers of end products to mitigate those risks, including tightening up supply contracts to allocate liability in the event of litigation and investigating overseas manufacturers’ compliance with the principles of good manufacturing practice.

Authored by Peter Rudd-Clarke.

Download our full Annual Insurance Review 2019 for more insights.