What’s in this Article
Your medical device company sells £3 million annually to NHS trusts. A design defect affects 500 devices causing patient harm. Individual claims average £150,000. Aggregate exposure: £75 million. Your product liability limit: £5 million.
The insurer pays £5 million across multiple claimants. You’re personally liable for £70 million in excess claims—an amount that bankrupts the company and potentially directors personally.
Product liability insurance limits determine whether coverage actually protects or provides false security that evaporates when major incidents occur. Understanding how to calculate appropriate limits based on product risk, sales distribution, and realistic worst-case scenarios determines whether manufacturers are adequately protected.
This article explains how to determine product liability insurance limits, factors that drive requirements, typical limits by industry and scale, and the cost trade-offs between adequate protection and premium affordability.
The Fundamental Limit Structure
Product liability policies have two key limits that work together.
Per occurrence limit (or “each and every claim” limit). Maximum amount the insurer pays for any single incident or claim, regardless of how many individual claimants are affected.
Example: £5 million per occurrence means the insurer pays maximum £5 million for one product defect incident, even if that incident results in 100 separate claims from injured parties.
Aggregate limit. Maximum total amount the insurer pays for all claims during the policy period (typically one year), regardless of how many separate incidents occur.
Example: £5 million aggregate means if you have three separate product defect incidents in one year, the insurer pays maximum £5 million total across all three incidents.
Integrated vs separate structure:
Integrated limits (most common). Per occurrence and aggregate limits are the same. Example: £5 million each and every claim / £5 million aggregate. This means £5 million is the maximum for any single incident AND the maximum for all incidents in the year.
Separate limits (less common). Different limits for occurrence and aggregate. Example: £5 million per occurrence / £10 million aggregate. This allows multiple moderate incidents to be covered fully even if one exhausts the per-occurrence limit.
According to Association of British Insurers market data, approximately 85% of UK product liability policies use integrated limit structures (same per occurrence and aggregate), with separate structures primarily used for high-volume consumer products where multiple independent incidents are statistically likely.
Product Liability Insurance UK: When Tech Hardware and Life Sciences Need Cover →
Key Factors Driving Limit Requirements
Several variables determine appropriate coverage amounts.
Product safety profile and injury severity potential.
High-severity products (medical devices, industrial equipment, products used by vulnerable populations): Require higher limits because single incidents create massive exposure.
Low-severity products (consumer accessories, non-critical applications): Lower limits may be adequate as worst-case scenarios are less catastrophic.
Sales volume and distribution scale.
Low-volume B2B sales (dozens of units annually): Moderate limits adequate (£2-5 million) as exposure is limited to small customer base.
High-volume consumer sales (thousands or millions of units): Higher limits essential (£10-25 million+) as single defects affect large populations.
Calculation approach: (Annual unit sales) × (Average claim value) × (Potential defect rate) = Worst-case aggregate exposure.
Geographical distribution and jurisdictional exposure.
UK-only sales: Standard UK limits (£2-10 million) generally adequate given UK damages environment.
EU distribution: Similar to UK, though multi-jurisdiction adds complexity (£5-10 million typical).
US sales: Dramatically increases requirements (£25-100 million+) due to US litigation environment, jury damages awards 5-10x UK levels, class action mechanisms, and punitive damages availability.
Contractual requirements from customers.
B2B customers often specify minimum product liability limits in supply contracts. Common requirements:
SME customers: £2-5 million minimum Enterprise customers: £5-10 million minimum
Public sector (NHS, government): £10-20 million minimum Critical infrastructure or safety-critical: £25 million+ minimum
Cannot execute contracts without meeting these minimums—inadequate limits block commercial relationships.
Regulatory or industry standards.
Some sectors have regulatory minimums or industry expectations for insurance coverage. Medical devices, aerospace components, automotive parts—industries with established insurance norms.
Financial capacity and risk appetite.
Larger companies can absorb higher retentions and potentially self-insure some risk (£10-25 million may not be catastrophic for £100 million revenue company).
Smaller companies need fuller coverage with lower retentions (£5 million limit could be existential for £2 million revenue startup).
Typical Limits by Product Category and Scale
Clear patterns emerge across industries and company sizes.
Medical devices:
Class I (low risk): £2-5 million adequate for small-scale manufacturers
Class IIa/IIb (medium risk): £5-10 million for UK/EU sales; £10-25 million if international
Class III (high risk): £25-50 million minimum; £50-100 million for US sales or large manufacturers
Rationale: Direct patient harm potential, strict regulatory environment, long-tail claims exposure (implants remain in patients for years).
Food and beverage:
Small local producers (<£500k revenue): £2-3 million
Regional manufacturers (£500k-£5m revenue): £5-10 million
National brands (£5m+ revenue): £10-25 million
Rationale: Contamination can affect large batches distributed widely, allergen claims are high-frequency, recalls are common and expensive.
Consumer electronics and IoT:
Startup/early revenue (<£1m): £2-5 million
Growth stage (£1-10m revenue): £5-10 million
Established manufacturers (£10m+ revenue): £10-25 million
US market exposure: Add £10-25 million to above ranges
Rationale: Battery fire risk, electrical safety exposure, high-volume sales multiply single-defect impact.
Industrial equipment and machinery:
Small specialist manufacturers: £5-10 million
Medium industrial suppliers: £10-25 million
Large equipment manufacturers: £25-50 million+
Rationale: Equipment failures cause business interruption and property damage at customer facilities; high claim values even with low frequency.
Pharmaceutical and supplements:
Clinical-stage companies: £10-25 million
Commercial products (UK/EU): £25-50 million
US market or blockbuster products: £50-100 million+
Rationale: Mass tort potential, adverse event clusters, regulatory scrutiny, extremely high damages for serious health effects.
Product Liability for Medical Devices: UK Regulatory Requirements →
The Cost Equation: Premium vs Coverage
Understanding premium structure helps make informed decisions about appropriate limits.
How premiums are calculated:
Base rate: Percentage of revenue or sales (typically 0.3-3% depending on product risk)
Limit multiplier: Higher limits increase premium, but not proportionally
Retention impact: Higher retentions reduce premium (you’re self-insuring more risk)
Claims history: Prior claims increase premiums 20-100%
Premium scaling examples:
£2 million limit: Base premium £15,000 £5 million limit: ~£20,000 (33% increase for 150% more coverage) £10 million limit: ~£28,000 (40% increase over £5m for 100% more coverage) £25 million limit: ~£45,000 (60% increase over £10m for 150% more coverage)
Key insight: Doubling limits doesn’t double premiums. Marginal cost of additional coverage is modest relative to protection gained.
The false economy of underinsuring:
Saving £5,000 annually by choosing £2 million instead of £5 million seems prudent. But if a £4 million claim arises, you’re personally liable for £2 million in excess—catastrophic for most SMEs.
Better approach: Arrange adequate limits for realistic worst-case scenarios, even if premium is 30-50% higher. The incremental cost is insurance functioning properly versus false security.
Strategic retention selection:
Lower retention = higher premium but lower out-of-pocket when claims occur
Higher retention = lower premium but more self-insured risk
Typical retentions: £10,000-£50,000 for SMEs; £50,000-£250,000 for larger companies
Retention strategy: Set retention at level company can absorb from working capital without financial distress. If £50,000 claim would strain cash flow, retention is too high.
Worst-Case Scenario Analysis
Calculating appropriate limits requires realistic worst-case modeling.
The analytical framework:
Step 1: Identify your worst product failure scenario (not theoretical—what could realistically happen given your product, use cases, and customer base)
Step 2: Estimate affected population (if defect affects entire production batch, how many units in circulation?)
Step 3: Estimate average claim value (based on injury severity, property damage potential, business interruption)
Step 4: Calculate aggregate exposure (affected population × average claim value)
Step 5: Add recall costs, regulatory defence, legal defence costs
Step 6: Add 20-30% buffer for estimation errors
Step 7: That’s your minimum limit
Example calculation—Consumer electronics company:
Product: Smart home battery-powered devices Annual sales: 50,000 units Worst-case: Battery defect causing fires
Affected population: 5,000 units (one production batch) Average property damage per incident: £25,000 Frequency of actual fires: 2% of defective units (100 fires)
Aggregate exposure: 100 fires × £25,000 = £2.5 million Recall costs: £400,000 (notification, retrieval, disposal, replacement) Regulatory defence: £100,000 Legal defence across all claims: £300,000 Total worst-case: £3.3 million Buffer (30%): £1 million Recommended limit: £5 million minimum
Example calculation—Medical device company:
Product: Class IIb diagnostic device Annual sales: 2,000 units to hospitals Worst-case: Algorithm error causing misdiagnosis
Affected population: 500 patients (devices deployed before fix) Average claim (delayed diagnosis, worse outcomes): £120,000 Actual claims filed: 40% (200 claims)
Aggregate exposure: 200 claims × £120,000 = £24 million Recall/remediation: £300,000 MHRA investigation defence: £150,000 Legal defence: £800,000 Total worst-case: £25.25 million Buffer (20%): £5 million Recommended limit: £30 million minimum (UK/EU); £50 million if US sales
Multi-Year Claims and Aggregate Exhaustion
Product liability operates on claims-made basis with annual aggregate limits, creating multi-year exposure considerations.
How claims-made works:
Claims are covered under the policy in force when the claim is made, not when the product was sold or injury occurred (subject to retroactive date).
If you sell a product in 2023 and a claim arises in 2026, your 2026 policy responds (assuming continuous coverage and appropriate retroactive date).
Aggregate exhaustion risk:
If multiple claims from same incident arise across multiple years, each year’s policy aggregate is separately available—but if one year’s aggregate is exhausted, subsequent claims in that year aren’t covered.
Scenario: Product defect affects 1,000 units. Claims trickle in over three years:
- Year 1: 300 claims totaling £4 million (covered under Year 1 aggregate)
- Year 2: 400 claims totaling £6 million (covered under Year 2 aggregate up to limit)
- Year 3: 300 claims totaling £4 million (covered under Year 3 aggregate)
If policy has £5 million aggregate, Year 1 is mostly covered, Year 2 has £1 million shortfall, Year 3 is mostly covered. Total insured: £13 million. Total uninsured: £1 million.
Mitigation: Adequate limits prevent aggregate exhaustion even with multi-year claim patterns.
The Bottom Line
Product liability insurance limits should be determined through worst-case scenario analysis: identify realistic failure scenarios, estimate affected population and average claim values, calculate aggregate exposure including recalls and defence costs, add 20-30% buffer, and set limits at or above this figure.
Typical limits: Medical devices (£5-50 million depending on class and geography), food products (£5-25 million), consumer electronics (£5-25 million), industrial equipment (£10-50 million), pharmaceuticals (£25-100 million+).
Key factors: product injury severity potential, sales volume and distribution scale, geographical exposure (US requires 5-10x higher limits), contractual customer requirements, and regulatory/industry standards.
Premium scaling is non-linear: doubling limits increases premium 30-50%, not 100%. Marginal cost of adequate coverage is modest relative to protection gained.
False economy of underinsuring: Saving £3,000-£5,000 annually by choosing inadequate limits creates business-ending exposure if serious claims arise. Better to pay slightly higher premium for limits that actually protect.
Strategic approach: analyze realistic worst-cases honestly, meet contractual minimums from customers, plan for geographical expansion (especially US), review limits annually as sales volume grows, and increase coverage before exposure materializes (arrange higher limits when entering new markets, not after incidents occur).
The fundamental principle: insurance limits should reflect actual risk exposure, not what’s cheapest or “standard for the industry.” Your specific product, customers, and distribution determine appropriate coverage—generic benchmarks are starting points, not final answers.
External Resource
Association of British Insurers (ABI) – Product Liability Market Data. https://www.abi.org.uk/data-and-resources/. “According to Association of British Insurers market data, approximately 85% of UK product liability policies use integrated limit structures (same per occurrence and aggregate), with separate structures primarily used for high-volume consumer products where multiple independent incidents are statistically likely.” UK insurance trade association, publishes comprehensive market data on insurance products and structures.
Simplify Stream provides educational content about business insurance for UK companies, especially those with high growth business models that require specialist insurance market knowledge. We don't sell policies or provide regulated advice, just clear explanations from people who've worked on the underwriting and broking side.
