Is your client covered down the liability chain?
The insurance industry never exists in a static environment as many aspects of the industry change on a day-to-day basis. If your clients are not aware of these changes, they are fighting a losing battle to ensure that they are sufficiently covered against risk.
The changing business landscape means companies operating today are more exposed to liability than ever before and, as a consequence, they have to be insured to protect themselves from consequences which can be so dire as to result in them closing their doors. The approach of many businesses towards the way they operate does not reflect the urgency of the situation.
The increased focus on liability is partly a consequence of the changing regulatory environment, most notably the Consumer Protection Act (CPA), but also comes as a result of local organisations doing business in Africa and beyond. However, many businesses are not sufficiently protected and therefore are at risk of liability claims which can severely affect their businesses.
Introducing strict liability
Domestically, the CPA introduces the concept of strict liability; liability which does not depend on the plaintiff proving actual negligence or intent to harm, which moves the onus of disproving harm to the distributor and manufacturers of consumer goods. The concept is entrenched internationally, and has implications for any business providing products into markets where strict liability is recognised.
Increased exposure to liability is not however limited to local operations, particularly since many South African companies export goods into other markets. Product liability claims are spiking in an increasingly litigious Africa, into which many local manufacturers and distributors are exporting goods of various kinds, and many local companies are also progressing into the rest of world.
The international landscape
Dom notes that trading in markets in the USA and the UK in particular is accompanied by serious strict liability exposures. Regardless of the territory in which any organisation is operating, a broader view of the supply chain has to be taken when insuring against liability claims.
The point at which the liability rests in the supply chain is not only the manufacturer of the product. Distributors, retailers and sub-contractors can be held liable, too. That increases the level of exposure and requires that every link in the supply chain is adequately insured.
As a hypothetical example, consider a logistics company which pays a subcontractor to warehouse components for a motor vehicle manufacturer. A fire occurs in the warehouse, destroying the components and interrupting production at the vehicle manufacturer. Liability for interrupted production may rest with the owner of the warehouse, but could also accrue to the Logistics Company and impact on the manufacturer, which cannot meet demand from its dealerships for new vehicles.
The point is that pinning down liability can be tricky and the litigation involved crippling. Companies which operate in the increasingly complex supply chains which define modern business have to have appropriate insurance as a fundamental requirement for doing business.
SME awareness
While bigger companies tend to take a rigorous approach to liability as a component of mandated corporate governance obligations, the mid-market and SME operators do not necessarily understand their exposure. This is where intermediaries play a vital role to inform clients and bring this to their attention.
It is the duty of the insurance industry to drive awareness. Do your clients understand liability? They probably do see the value in having the right cover, but it is easy to get bogged down in legalese rather than getting to the heart of the issue, which is that product businesses face a very real threat from strict liability in many markets around the world.
