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11/22 M97/February 2018 Reinsurance

It is for this reason that products liability policies contain an annual aggregate limit and would also
Products
liability policies cover the following:
contain an annual
aggregate limit
incorrect
labelling

products
efficacy
recall

Products liability
policies cover:

financial products
loss guarantee

professional
liability

Products recall insurance covers the costs of recalling all products within a particular batch that was
found to be faulty. Recall is initiated by the insured manufacturer and involves advertising the fact plus
replacing the goods when they were brought in. This class involves moral hazard in that insureds may
recall products on the slightest grounds, maybe for public relations purposes. It is not liability insurance
as such and would therefore be excluded from the standard reinsurance product.
Be aware Reference copy for CII Face to Face Training
If it is known that a product is faulty it may be less expensive to underwrite the cost of product recovery than to deal
with an inevitable stream of insured losses at some point in the future.

Products guarantee insurance deals with the performance of a product and can be exposed to a series of
claims if a product malfunctions. Therefore, it can experience runaway claims and is not the subject of
liability coverage as no damage or injury has to occur.
Efficacy refers to a product failing to perform the job for which it was purchased. It is certainly debatable
as to whether this should be the subject of insurance and it is not appropriate to products liability
insurance, as the latter has to involve bodily injury or property damage.
Pure financial loss is excluded, as the purpose of a products liability policy is to indemnify third parties
Pure financial loss is
excluded for bodily injury, physical loss or damage caused by a product. Pure financial loss would not have injury
or damage as a requirement and, if it were included, would extend the boundaries of cover to an
unreasonable extent, allowing all types of unforeseeable economic losses.
The potentially most serious accumulation in liability insurance is that caused by an active ingredient.
The resulting liability claims against a large number of manufacturers would have an extensive impact on
the entire insurance industry.
Refer to chapter 7, A serial loss can mean a considerable exposure. In such cases several persons suffer loss or injury as a
section D10C for
claims series clause result of the same act or omission by the policyholder that obliges the latter to pay compensation. Serial
losses are limited in reinsurance through the inclusion of a serial loss clause in excess of loss treaties.
Example 11.9
The serial loss clause wording is used in scenarios where a single insured has purchased a number of pieces of
equipment or parts from a single vendor. In this scenario, insurers may have concerns with defects in design or
manufacturing that reoccur in the product fleet and all losses belonging to a series attributable to one and the same
cause are treated as a single occurrence.

In some cases it has to be taken into account that this can lead to a disadvantage for the reinsurer when,
11 by the treatment of a number of individual losses as one occurrence, the deductible is exceeded.
Nonetheless, such a clause is necessary in order to restrict major serial losses for the reinsurer.
Chapter