When people first start a business, insurance is usually the last thing they think about. However, having good product liability insurance can be just as important as creating quality items or running marketing campaigns. Here are some of the reasons that a startup company is particularly likely to benefit from getting good product liability insurance.
Outsourcing May Lead to More Claims
When a business is first starting out, they usually cannot handle every aspect of producing a product, from creating the raw goods to selling it to customers. For most startups, the solution to this issue is to outsource manufacturing or distribution. However, this becomes a big problem when anything goes wrong. Typically, consumers are advised to sue everyone in the chain of distribution when something goes wrong. Especially for companies who outsource overseas, this can mean they end up being sued for something a factory they never even visited has done. Product liability insurance can help protect companies from these sorts of claims.
The Number of Product Liability Claims is on the Rise
Thanks to the internet, more people than ever are aware that they can get big payouts by suing for minor issues. This means that businesses are more likely than ever to face a lawsuit for some sort of product liability issue. Concerningly, these lawsuits are starting to ask for bigger payouts as well. Since 2014, product liability settlement size has continued to expand. With the higher risks of having a product liability lawsuit in modern times, it is important for businesses to be proactive and protect themselves.
Hefty Payouts Can Bankrupt Startups Before They Begin
When a big company faces a product liability lawsuit, solving the problem is often as simple as just throwing money at it until it goes away. This is not the case for most startups. They are operating with limited funds, so having to make big, unexpected purchases can lead to bankruptcy. Since they are not a well-established brand, the negative publicity of lawsuits is also more likely to scare away potential customers. Having insurance helps companies prepare for the worst and get the funds they need to discretely handle the issue if they encounter a problem.