I had a nice meeting with a potential client today, and we got to talk about liability insurance.
What is liability insurance? According to Wikipedia, it “protects the purchaser (the “insured”) from the risks of liabilities imposed by lawsuits and similar claims.” It is particularly interesting for products that might hurt/kill consumers and be recalled.
The purchaser explained to me that they buy large quantities of very cheap electrical products, such as watches or razors, for about US$1.00 FOB. She has a liability insurance policy covering these goods. It makes sense, since the potential damages are quite high and a safety issue might pull her company down.
She told me it was harder and harder to get this type of policy. Insurance companies are afraid of higher and higher claims, so they are not really interested in that type of business.
Important clarification: this type of insurance policy can protect an importer from getting buried under millions of dollars of claims. But it does not help in any way if the buyer receives junk that cannot be sold at all (in that case the whole order is lost). And it does not help to regain the trust of domestic resellers/retailers.
As usual, I would argue that the most important is to catch issues upstream, at the design stage or at least at the production stage. When the products are on the market, everything is more expensive. See the 1:10:100 rule.
Has anybody got some experience with liability insurance for importers?
UPDATE 30 Sept.: I came across some good tips, for those importers interested in liability insurance.
1. If you purchase from a large Chinese manufacturer, you might be able to convince them to pay for the insurance policy. The reason is that it will probably be less expensive. Go read this post on the China Law Blog, written by an insurance professional.
2. If you have a very strong quality assurance system in place, you might also be able to decrease the amount of the insurance fees. For a good example, read the first comment below this article (written by Brad Pitts).