The products liability insurance marketplace for toys begins with the businesses that design them and ends with the retailers that sell them. According to Ken Laderoute, vice president-underwriting of Burns & Wilcox, “They’re all going to have different needs but the one thing they’re probably all going to need is product liability or they should at least consider it.”

Ken Kukral, president, CEO and chairman of International Excess agrees that everyone should buy products liability coverage and adds, “With much of the manufacturing being done internationally, it is more important to coordinate their domestic and international products liability programs.”

One of the markets eager to help with such coordination is Markel Shand. Nan Meyer, assistant vice president-product liability product line manager says, “All of our insureds are U.S. based, so an insured is often an importer of products from a foreign country. Our Markel International unit in London has a subsidiary, Markel Singapore, that uses a Lloyds’ syndicate to write non-U.S. manufacturers that export products to the U.S. and Canada.”

Every expert is concerned with products manufactured in China and other Asian countries and imported into the U.S. Any business that imports from these regions is underwritten as a manufacturer and not as a wholesaler. The key reason for this, according to Ms. Meyer, is “because China and other Asian countries, for example, have not signed on to the Hague Agreement. This basically means that any judgment made by a U.S. court against such a manufacturer is unenforceable.”

Mr. Laderoute explains that foreign manufacturing is not merely a toy industry concern because “an injured party is not able to go back to a foreign manufacturer and obtain redress. In addition, there’s no way of knowing what coverage or limits a foreign manufacturer might have when there is a loss.”

According to Mr. Kukral, products liability is not written on a blanket basis. He says, “Most polices are named products policies.” This means that liability coverage applies only to the products specifically named or described in the policy. For this reason, he recommends that “even the low selling and discontinued products be included.” A strong recommendation is for the agent to discover products already in the client’s pipeline it is considering manufacturing or distributing, since they will not be covered on a named products policy until and unless they are specifically added. He adds, “A good products liability application asks a number of question that help draw out the particular exposures a risk may have.”

Product recall is a very important coverage that is readily available but also quite expensive. Mr. Laderoute points out that toys are a target class for product recall along with meat, medical products, computers and vitamins. He says, ”The recall can be a tremendous cost to the manufacturer or distributor that has to recall all of its products, both those already sold as well as products on their shelves or in stock.” Ms. Meyer explains that Markel units Essex Insurance Company and Evanston Insurance Company write this coverage with a sub-limit within their products liability policies but, “the recall must be mandated by the Consumer Product Safety Commission or other regulatory body in order to be covered.”

The overall marketplace is apparently very open. Ms. Meyer states, "We will entertain virtually any type of toy, whether U.S. or foreign-made, and will underwrite each risk individually." They will look at risk management, quality control, testing and warning labels. They are particularly concerned about adherence to American National Standard Institute (ANSI) guidelines for labeling because “We want to be sure that the product is appropriate for its intended use and correctly labeled for use by a certain age child.”

Mr. Laderoute notes, “The whole market has opened up because of market conditions, even though toys are a difficult products liability risk. Because underwriting standards have been relaxed, standard carriers are writing more of the traditional E&S products like this than they normally would, and there’s a tremendous amount of competition and rate cutting going on in our business.” Mr. Kukral also noted this competitive change while commenting that “competition is keen with a number of standard carriers willing to consider more account and price drops for the good accounts with excellent loss histories.”

Capacity is not a concern in this line. According to Ms. Meyer, they offer limits from $1,000,000 to $5,000,000 and “will entertain higher limits if required by a major retailer.” Mr. Kukral also notes that there is plenty of capacity. He adds, “Most prospective accounts are looking for $500,000 to $2,000,000 in order to meet the requirements set by retailers.”

It is very important to know the risk and provide that information to the underwriter. Mr. Kukral emphasizes that “A responsible agent should walk through the insured’s plant, review its website, look over its catalogs and product brochures and ask questions.” As an underwriter, Ms. Meyer appreciates that information and often visits the applicant’s website in order to look at the product itself, the warning labels and its intended use. Underwriting usually asks about recalls, lead paint and testing. Any decision on age appropriateness “is based on a ‘prudent man’ principle and asks the question: What would a prudent person think is a reasonable age at which to give a child the product?” Mr. Laderoute agrees with the importance of accurate and thorough information and provides a caution regarding the companies that don’t insist on it saying, “Unfortunately, with the change in market conditions, we have a lot of players coming in and trying to write this business without really knowing what they’re doing. They’ll find that out when their results deteriorate and we return to a harder market.”

Mr. Kukral offers this advice to retail agents interested in pursuing toy-related accounts. “Understanding the coverage the client currently has is important since some carriers write on occurrence forms and others on claims made forms. In addition, when moving a client from one claims made policy to another, be sure the coverage under the new policy is broader because if there are additional exclusions on the new claims made policy, the client loses coverage going back.” He also advises retail agents to look for worldwide products coverage along with prior acts coverage.

When you are shopping for a new toy, don't forget the inventor and manufacturer that developed it and the important part our industry plays in making sure each can continue to thrive.