The market experiences a constant tension between consumer need to find products that work properly and safely, and the worry about killing creativity among manufacturers because of strict regulations or high insurance costs. Every company needs to consider risk possibilities when it calculates costs of production. Can the business sustain a huge financial hit if the product fails or needs to be recalled, repaired or refunded? It is required to produce quality products, yet must still be sure that potential financial loss won’t cripple the business if it happens.
It’s not that the strict regulations are unnecessary. If consumers find products to be defective, it isn’t always by pressing a button and discovering they don’t work; often the discovery is made when they sustain an injury or experience another type of loss. And all of these losses, such as injury or loss of business and productivity, and so on, carry a high social cost. Liability regulations have not been created simply to “stick it” to corporations, even though they and their product liability lawyers tend to claim that this is the case. Even the corporations lose, ultimately, if defective products enter the marketplace and there are no consequences or incentives for companies to improve them.
So the tension exists with a sort of spiral effect. Consumers find defective products and launch law suits to recover damages, have the products recalled, or have the products changed. Companies faced with high liability costs include them in their manufacturing production costs, and pass those on to the consumers, who then demand that since they’re paying those extra costs, the regulations had better be tightened, which increases the manufacturing costs further. And so it goes.
Because of the tensions, insurance companies have tried to help both consumers and manufacturers find products; namely insurance products that can carefully balance the two sides. Insurance firms provide basic liability policies that liability professionals can subsequently tailor to a company’s needs. For example, some policies would need to cover things like tampering or product recalls, while others wouldn’t. These custom-tailored policies help reduce some of the company’s costs. In the end, the goal is to create quality, consumer products that are safe and reliable. So insurance and government regulations both need to balance the need for consumer safety with the creative freedom of industry.
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