At a glance
- Public and Products Liability (PL) insurance is an important part of doing business, with minimum levels commonly required
- However, minimum Limits of Indemnity may not be enough for customers’ actual needs, especially following recent changes to the law
- We explain the benefits of reviewing PL limits of indemnity, and offer guidance on choosing a suitable level of cover
This article counts towards accumulating your annual CII CPD structured learning hours for Underinsurance.
By reading this article, and correctly answering the three questions underneath, you will have achieved the following learning outcome: Describe the most important factors to consider when setting an indemnity limit.
Visit the CPD Hub to log in and begin accumulating CPD hours.
We explain the benefits of reviewing PL limits of indemnity, and offer guidance on choosing a suitable level of cover.
Rising costs prompt need for review
PL insurance protects against property damage and/or personal injury caused to third parties by the nature of business activities.
Claims values have seen significant increases in recent years, causing many customers to consider the need for higher limits of indemnity to remain adequately insured.
Change in personal injury discount rate
This is especially true for claims involving personal injury, where a recent change in the law has dramatically affected potential settlement values (see case study example in right hand column).
“The recent change in the personal injury discount rate means that customers can now realistically anticipate losses in excess of £10m on a single severe injury claim,” explains Alan Roxburgh, Public and Products Liability manager at Zurich. “Going back five or 10 years that would have been pretty much unthinkable.
“As incidents can involve multiple claimants, this development highlights the need to think carefully about maximum exposures and the limits of indemnity you hold.”
Consider the following key points when determining an appropriate level of cover:
1. Minimum requirements
PL insurance has become an important part of doing business, and an increasing number of contracts require parties to hold minimum levels of cover.
This is especially true when dealing with public sector bodies, which typically require £10m be held by anyone working for, on behalf of, or in partnership with them.
Industry bodies may also stipulate minimum insurance requirements for their members, particularly those associated with the building trade.
Customers should therefore review their obligations and ensure they are meeting minimum requirements.
However, minimum levels requested by other parties have very little bearing on an organisation’s actual needs.
2. Nature of activities
Customers need to think carefully about the possible scenarios where their activities could cause damage or injury.
Higher risk activities, working around valuable assets and the provision of critical components are all likely to result in higher claims frequencies and values.
Certain industries and territories are also known to be more litigious or generally award higher damages. For example, the United States and Canada present notably higher exposures, and some PL policies may include limitations on claims from those jurisdictions.
3. End use
Thinking should not be limited solely to customers’ immediate dealings, but also the end use of a product or service.
For example, the potential liabilities of a metal bolt manufacturer are significantly higher if the bolts are ultimately used within a safety critical part of an automobile engine.
4. Common policy terms
Many PL policies include some common policy terms to be aware of.
In particular, while public liability is written on an ‘any one occurrence’ basis, products liability is typically offered as an ‘aggregate’ limit of indemnity. This means that the limit of indemnity applies across all claims during the policy term, not each claim in isolation.
Customers with product-led businesses will therefore need to consider higher limits of indemnity in order to adequately manage product-related risks.
Other common limitations may relate to exports to the United States and Canada, or products for use in aircraft and activities involving radiation.
“At Zurich we strive to offer cover that fully meets our customers’ needs,” says Alan. “We have a variety of PL solutions available, many tailored to specific trades, and take a flexible approach to underwriting.”
How we can help
Zurich is a market leader in Public and Products Liability and handles more bodily injury claims than any other insurer in the UK.
In addition to insurance, our expert Risk Engineering team can help prevent incidents occurring and advise on processes to reduce the size of claims when they do happen.
For more information on anything discussed in the article, or to discuss options for increasing limits of indemnity, please speak with your local Zurich contact.
Case study – from £6.8m to £10.7m
In this real Zurich claim, a cyclist hit a pole due to the alleged negligence of our insured. They sustained a brain injury requiring long-term care.
• Claim reserve before 27 February 2017 (+2.5% rate) – £6.8m
• Claim reserve after 27 February 2017 (-0.75% rate) – £10.7m
The change in personal injury discount rate caused the likely future care costs settlement to increase by £3m alone. Overall claim reserve increased by £3.9m in response to the change.
Read more Zurich case studies here.