The Cost of Liability Insurance - Out of the Toy Box

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Richard Gottlieb

The Cost of Liability Insurance
August 13, 2008

I was recently interviewed about the toy industry by an insurance industry trade magazine. The author wanted to know what I thought were key issues facing the toy industry vis-à-vis insurance.

I responded that I keep noticing that entrepreneurs, for the most part, fail to include the cost of liability insurance in their business plans. They create their products, calculate all of their costs and then generate a selling price. At the last minute it suddenly occurs to them that they are going to need liability insurance and if they are going to sell to the mass market actually require it.

Once they get their first insurance quotes they are typically shocked at the cost. It is far higher then they imagined (I called a source of mine in the industry who said that it runs $7,500 to $10,000 minimum for new companies) and suddenly that selling price they carefully crafted and have already quoted to buyers is not sufficient to generate a profit. What makes it even harder is that, frequently these are products that have low price points and are in very short runs so the impact on pricing is great.

Some ask if they really need liability insurance and of course the answer is “yes they do.” We live in litigious times and their dream, as well as their assets, can get wiped out by a product that inadvertently causes harm.

So bottom line, if you own a house you need home owners insurance; if you own a car you need automobile insurance and if you own a toy company, yes you are going to have to have liability insurance. Just make sure you know what it costs before you finalize your pricing.

Posted by Richard Gottlieb on August 13, 2008 | Comments (2)

August 23, 2008
In response to: The Cost of Liability Insurance
Mark Salzwedel commented:

This was certainly a shock to me, just as you described. I thought my small board game company was at minimal risk for litigation, so I thought I could wait to get the product liability coverage until we had significant market presence to increase our exposure. The one thing that you didn't mention finally got me to seek out insurance quotes: The retail chains that were courting me for games all REQUIRED that I carry product liability insurance and cover them in a certificate. I talked to a colleague in Michigan who got the coverage for under $2,000. As I started investigating, I found that indeed most of the quotes I got were $7,500 or $8,000. Fortunately with a good tip from the New York State Insurance Commission, I found a broker who also got our company the liability insurance for under $2,000. The bigger surprise in my projections was the cost of exhibiting at trade shows. Not just that the registration, shipping, and accommodation costs were high, but the learning curve is steep and the sales that resulted didn't produce the orders I'd imagined, so it meant a lot more trade and consumer shows than I'd budgeted to get the sales I'd projected.

August 25, 2008
In response to: The Cost of Liability Insurance
Richard commented:

Dear Mark, Thank you for an outstanding post. It really tells others a great deal about what is involved financially as well as the necessary learning curve in going to market.