​​​AdvisorSmith, a leading provider of small business and insurance content, released its most recent study showing the average costs of product liability insurance for small businesses in the U.S. The study's findings provide insights into a sector of the industry that has seen a dramatic increase in claims and activity during the COVID-19 pandemic.

At the beginning of the pandemic, data showed an uptick of 300% in product liability claims in civil federal court, according to LexisNexis. While it isn't the only area of insurance to see an increase in claims, it is an outlier given its unique relationship to the pandemic.

The production and sale of personal protective equipment has blossomed into a major industry during the pandemic, with everyone from wholesale suppliers to small retail storefronts involved in selling and producing facemasks and protective visors. Producing and selling personal protective equipment comes with certain liabilities and, as such, the major increase in product liability claims has been largely attributed to personal protective equipment-related claims.

An analysis of premium costs for commercial general liability across the areas of manufacturing, wholesale and retail found the average cost of product liability insurance in the U.S. to be $1,192 per year or “$99 per month for small businesses with $1 million in revenue and 10 employees."

Across the three sectors, retail businesses had the highest annual cost for general liability, including product liability, with an average cost of $1,271. This higher cost is due to the inclusion of retail-related claims such as slip-and-fall claims in their policies.

In comparison, manufacturers and wholesale distributors saw lower costs for their general liability insurance due to the limited exposure of third parties to work sites and nearly all of their liability deriving from claims due to manufacturing or design defects.

The study also highlighted was the wide-ranging variance in the cost of product liability insurance depending on the type of product and business being provided. For example, manufacturers and wholesale distributors providing personal protective equipment will face higher premiums on a general liability policy while retailers providing protective equipment could also pay higher premiums than average.

This is a key trend as the pandemic continues to impact everyday life and business. This is a key trend as the pandemic continues to impact everyday life and business. As long as COVID-19-related factors are playing a role, the product liability sector will likely continue to gain importance in the industry. 

Jan Alex is an IA contributing reporter.