Liability Insurance: Info Guide

Liability Insurance

Liability insurance protects you against financial loss if your actions, your negligence or the condition of your property is found to cause a person to be injured or killed, or a person's property to be damaged or destroyed or they suffer loss as a result of relying on your services or advice.

There are three forms of liability insurance:

1. Public liability
2. Professional indemnity
3. Product liability

Liability products are most commonly taken out by businesses for risks involved in their day-to-day operation, but they are also built into many property insurance policies, for example, liability cover in home and contents insurance.

Liability insurance covers two key financial risks. One is the legal cost of defending a claim. The second is the compensation that you may be directed to pay the injured or wronged party, plus their legal costs if a claim against you is upheld.

These usually include an excess to be paid by the policyholder in the event of a claim, and generally set a limit on the total amount payable under the policy, as well as a per-claim limit.

What is Liability Insurance? Liability insurance (also called third-party insurance) is a part of the general insurance system of risk financing to protect the purchaser (the "insured") from the risks of liabilities imposed by lawsuits and similar claims. 

It protects the insured in the event he or she is sued for claims that come within the coverage of the insurance policy. Originally, individual companies that faced a common peril formed a group and created a self-help fund out of which to pay compensation should any member incur a loss (in other words, a mutual insurance arrangement). The modern system relies on dedicated carriers, usually for-profit, to offer protection against specified perils in consideration of a premium.

Market

Commercial liability is an important segment for the insurance industry. With premium income of USD 160 billion in 2013, it accounted for 10% of global non-life premiums of USD 1 550 billion, or 23% of the global commercial lines premiums. Liability insurance is far more prevalent in the advanced than emerging markets. The advanced markets accounted for 93% of global liability premiums in 2013, while their share of global non-life premiums was 79%.

The US is by far the largest market, with 51% of the global liability premiums written in 2013. This is due to the size of the US economy and high penetration of liability insurance (0.5% of GDP). In 2013, US businesses spent USD 84 billion on commercial liability covers, of which USD 50 billion was on general liability, including USD 12 billion for Errors and Omissions (E&O) and USD 5.4 billion for Directors and Officers (D&O). US businesses spent another USD 13 billion on the liability portion of commercial multi-peril policies, USD 9.5 billion for medical malpractice and USD 3 billion for product liability covers.

What are the different types of liability insurance?

1) Commercial general liability (CGL) policy:

2) Directors and Officers liability insurance:

3) Professional indemnity insurance:

4) Cyber risk insurance:

5) Commercial crime insurance:

6) Carrier legal liability insurance:

7) Product liability insurance:

8) Trade credit insurance: