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When Products Don't Work: The Case for Efficacy Insurance

You just unboxed your brand-new smartphone, confident that the quad camera and supercharged processor will deliver stunning photos and lighting-fast speed. But as soon as you turn it on, the phone shuts down. Despite multiple resets, it simply will not work.

We’ve all experienced that feeling of frustration when a product fails to perform as advertised. And while annoying for consumers, it can be devastating for businesses if products fail at scale and cause a loss. That’s where efficacy insurance comes in.

Efficacy insurance provides protection when a product fails to do what it’s designed and marketed to do. It covers third-party losses that doesn’t necessarily cause bodily injury or property damage. Think of efficacy insurance like a parachute – you hope to never need it, but when product failure occurs, it could save your business.

Picture a company called CleanDrive that makes electric vehicles. They promote automated driving and collision avoidance as a key selling point. But a defect in their sensors causes vehicles to fail to detect obstacles, leading to repeated collisions. CleanDrive faces massive liability, litigation and repair costs without efficacy being covered under their Products Liability insurance.

Or envision a firm named SmarTheft that sells high-tech intruder alarm equipment. A flaw in the software means the intruder alarm is not configuring correctly. The system fails, making it easy for an intruder to break-into the premises, causing a significant theft. SmarTheft could be found liable for these losses because their product did not work as intended. Without efficacy cover, the costs could ruin their business.

The reality is product failures happen in every industry. Medical devices malfunction. Software can glitch and freeze. Materials in manufacturing can have defects. The list goes on.

While we hope for perfection, it’s rare. That’s why efficacy insurance is so crucial. It picks up where general liability insurance leaves off, protecting you when the parachute fails to open. Don’t leave your business free-falling without the right cover in place.


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