If you sell products on Amazon's online marketplace, you are taking advantage of the world's largest online marketplace's large audience base and logistical prowess. While strategizing how to get your product listing viewed by millions of potential customers and positioned toward the top of Amazon's Best Sellers list, it is also crucial to consider the financial and legal risks associated with selling a product.
A customer lawsuit over a product your business sold to them could adversely impact the brand you are working hard to build — not to mention your bottom line. That is where product liability insurance becomes invaluable. This article explores the factors contributing to the cost of product liability insurance.
What is product liability insurance?
These policies cover the liability of the manufacturer or seller for loss or injury resulting from the product, whether due to a manufacturing defect, design defect, or inadequate warnings or instructions.
Claims under product liability could be related to:
- Personal injury or harm caused by the product
- Property damage caused by the product
Product liability insurance can help protect businesses selling on Amazon’s marketplace from the financial burden of lawsuits, including legal fees, settlements, and judgments. In addition, this coverage can help cover the cost of property damage caused by a defective or malfunctioning product and/or medical costs if someone is injured due to a product they purchased from you.
Factors that influence the cost of product liability insurance
Product type and associated risks: Different products carry different risk levels, which directly impacts insurance premiums. For example, a business selling books may have lower insurance costs than one offering high-tech electronic devices, which pose higher risks, such as electrical malfunctions or fire hazards.
Sales volume: The more products you sell, the greater your exposure to potential liability claims. Consequently, insurers may charge higher premiums to businesses with higher sales volumes.
Business location: Regulatory environments differ from state to state. Operating in a state known for high frequency legal settlements could increase pricing.
Business history and claims record: In the same way that auto insurance premiums are calculated on your personal vehicle and driving record, insurers look at a business's past when determining product liability insurance costs. A company with a history of product liability claims may face higher insurance costs than one with a clean record.
How to estimate your product liability insurance costs
When completing your insurance application, you will need to provide detailed information regarding your products, sales volume, business history, and geographical coverage.
Insurers use various models to calculate premiums, so getting multiple quotes is essential. With the Amazon Insurance Accelerator, you can receive quotes from multiple carriers in five minutes or less via a single, streamlined digital application.
Comparing quotes from multiple insurers will give you a better understanding of the monthly and yearly costs associated with maintaining coverage.
How to reduce your product liability insurance costs
Improve product safety: Investing in product safety can sometimes result in lower premiums. For example, if you sell kids' toys, ensuring they are free from small parts that could pose choking hazards can lower your risk profile and, consequently, your insurance costs.
Implement quality control measures: Implementing strict quality control measures can also help reduce insurance costs. Regular product inspections and adhering to the highest manufacturing standards can lower the chances of defective products reaching the market, thereby reducing the risk of liability claims.
Receive quotes from multiple insurers: By applying for coverage via the Amazon Insurance Accelerator, you can obtain quotes from multiple insurers and select the best policy for your company. As an added benefit, all policies purchased through this program adhere to Amazon's seller insurance requirements.
The cost of not having product liability insurance
Without a comprehensive product liability insurance policy, a single lawsuit from a defective product could result in significant financial losses for the company. Expenses could include legal fees, settlement costs, and damage payments that can quickly run into thousands, if not millions, of dollars.
Insurance protection can provide a financial shield against such losses, helping ensure your Amazon business's survival and continuing growth, even in the face of liability claims.
Conclusion
Understanding the cost of product liability insurance helps Amazon sellers plan better, reduce risks, and secure their business's future. Insurance costs are a business expense, and they pale in comparison to the potential financial consequences of liability claims. An investment in insurance is an investment in the longevity and success of your Amazon business.
Understanding these costs can help ensure the long-term success of your Amazon business and is a sound strategy for any savvy entrepreneur.
If you are ready to complete your application and receive quotes for coverage, visit the business insurance page within your Amazon Seller Central account and click on the Marsh tile to get started.
If you have questions about product liability insurance, please contact our team at amazonsellers@marsh.com.
