10 key questions on the EU Product Liability Directive

The new Directive explicitly includes software and AI systems as products.

Key underwriting questions:

• Does the product rely on software to operate?
• Is AI used in decision-making?
• Are there algorithmic updates or machine learning features?

Risk issue

Software defects could lead to:

• Bodily injury
• Property damage
• Financial loss

This may create systemic product failure risk across thousands of devices.

The Directive recognises that post-sale updates are part of the product lifecycle.

Key underwriting questions:

• How often are updates released?
• Are security vulnerabilities patched quickly?
• Who is responsible for updates (manufacturer, developer, supplier)?

Insurance concern

A defective update may create simultaneous large-scale failures, increasing the likelihood of mass claims.

Example exposures:

• Autonomous vehicles
• Connected medical devices
• Industrial robotics

If a product can be hacked, courts may consider it defective if it leads to harm.

Key underwriting questions:

• Are penetration tests conducted?
• Is there vulnerability monitoring?
• Are security patches mandatory?

Worst-case scenario

A cyber vulnerability could affect millions of devices globally.

The Directive allows courts to consider non-compliance with safety requirements when assessing whether a product is defective.

Key underwriting questions:

• Product testing documentation
• Certification evidence (CE marking etc.)
• Regulatory compliance

Industries of concern

• Medical devices
• Industrial machinery
• Electrical products
• Consumer electronics

Liability can extend to:

• Component suppliers
• Importers
• Distributors

Key underwriting questions:

• Where are components sourced?
• Are suppliers contractually responsible for defects?
• Are indemnities in place?

Supply chain defects are a major source of claims.

This is particularly important for latent injury risks.

Examples of high-concern chemicals:

• PFAS
• Endocrine disruptors
• Microplastics
• Heavy metals
• Pesticides

These exposures may produce claims decades later.

The Directive increases the importance of internal documentation and traceability.

Key underwriting questions:

• Is there a formal incident reporting system?
• How quickly are defects investigated?
• Are recalls conducted when necessary?

Failure to act on complaints can increase liability.

Autonomous products present high-severity liability risk.

Examples:

• Self-driving vehicles
• AI medical diagnosis
• Automated manufacturing robots

Key underwriting questions:

• Who is responsible for decision-making errors?
• Are fail-safe systems in place?

The Directive allows latent personal injury claims up to 25 years in some cases.

It is important to understand:

• Expected product lifespan
• Maintenance and support period
• Software support duration

Products with long life cycles create long-tail liability exposure.

Product recalls are often the first signal of major liability losses.

Key underwriting questions:

• Is there a recall plan?
• Is crisis communication prepared?
• Are distributors able to trace affected products?

Companies without recall planning pose higher loss risk.