The EU’s New Product Liability Directive Changes Corporate Liability – The Importance of Insurance Coverage Is Emphasized

 

The European Union’s new Product Liability Directive responds to the challenges of the digital and global economy, but at the same time it expands companies’ liability and risk exposure. For businesses, this means placing even greater emphasis on proactive risk management and optimizing insurance coverage.

The EU is significantly reforming product liability regulation. The new Product Liability Directive 2024/2853 replaces legislation that has been in force for nearly 40 years, and EU Member States must transpose it into national law by 9 December 2026. The reform introduces broader obligations for companies in situations where products cause claim.

The new directive brings extensive changes to product liability, particularly affecting companies whose products or services – including digital content – are placed on the EU market. The aim of the reform is to address new risks arising from digitalization, software, and artificial intelligence, while simultaneously expanding corporate liability and directly impacting insurance coverage and risk management needs. What changes can be expected, and what should companies take into account?

 

The Concept of a Product Expands from Physical Devices to Digital Solutions

A key change in the directive concerns the expansion of the concept of a product. In the future, in addition to traditional tangible goods, software and digital components essential to a product’s functioning will also be considered products. This means that, for example, a software update or smart functionality may fall within the scope of product liability in the same way as the physical device itself. A company’s liability will therefore no longer be limited to the visible product but will also extend to its digital features.

 

The Liability Chain Becomes Clearer – Responsibility May Extend to Multiple Actors

Liability for a product does not rest solely with its manufacturer. If the original manufacturer cannot be identified or reached within the EU, liability may shift to the importer, authorized representative, distributor, or another operator that has placed the product on the market. Importers and e-commerce operators may be required to assume responsibility for products or components whose original manufacturer is located outside the EU. In Finland, the change will broadly affect SMEs, importers, and resellers, whose liability role may increase without them fully realizing it.

 

Compensation Liability Expands and the Duration of Liability Increases

Personal injury or property claims caused by a product can be compensated more flexibly than before, strengthening the position of injured parties. The scope of compensable claim expands to include psychological harm and data loss, and previous minimum value thresholds for small claims are removed. The duration of liability may extend far into the future, up to 25 years from the date the product was placed on the market. This significantly lengthens a company’s risk exposure compared to the current situation.

 

Insurance Coverage Becomes Central

From a company’s perspective, the change is not merely a legal issue but also an insurance matter. Expanding liability and a longer time horizon increase the need to assess the adequacy of existing insurance coverage. The scope and limitations of product liability insurance, general liability insurance, and potential technology risk insurance policies will become increasingly important. Especially for solutions involving digital products or software, it is essential to ensure that insurance coverage corresponds to liability under the new regulation.

 

The Importance of Supply Chains and Contracts Is Emphasized

The importance of supply chains is also highlighted. When liability may be directed at multiple actors, the clarity of contracts, documentation, and allocation of responsibility affects both the management of claim situations and insurance compensation. Companies must clearly understand where their liability begins and ends, and how this is reflected in their overall insurance program.

In Finland, where many companies operate in a small open economy and source products from around the world, the new directive makes managing the unpredictability of the liability chain even more important.

Furthermore, in situations where a product or software has been modified before being reintroduced to the market, product liability may shift to the reseller or modifier. This further emphasizes the importance of supply chain transparency and contract-based allocation of responsibility.

 

Companies Should Prepare for the Change in Advance

The new Product Liability Directive will be applied in Member States through national legislation and is expected to enter into force in Finland after a transition period. In practice, the change will apply to products placed on the EU market after the directive enters into force. Although application will begin later, companies are advised to prepare in advance by mapping their risks and reviewing their insurance coverage.

 

We recommend the following measures:

• Assessment: Identify which products and services fall within the scope of the new directive.
• Insurance Review: Evaluate current product liability, general liability, and technology risk insurance policies.
• Supply Chain Review: Ensure clear allocation of responsibility in contracts and supplier chains.
• Risk Management: Carefully document product design, testing, and update processes.

 

Firstbrokers Supports Its Clients Through the Change

The reform of the Product Liability Directive increases companies’ liability in situations where products or their digital features cause claim. At the same time, it highlights the importance of proactive risk management and properly structured insurance coverage. Firstbrokers monitors regulatory developments and helps clients assess how the changes affect their business operations and insurance coverage in practice. Our experts assist clients in navigating these changes, ensuring appropriate insurance protection, and building risk management solutions that address both current and future liabilities.

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Firstbrokers Oy was founded in 1989 and is thus the first insurance brokerage company in Finland. Customers are Finnish SMEs and subsidiaries of international companies. Firstbrokers Oy is also the most international insurance broker in Finland, as it is a member of several global insurance broker networks. This enables business customers to provide risk management, insurance and employee benefits services easily, cost-effectively and reliably in more than 110 countries. Firstbrokers Oy covers its customers' business and employees in all industries. Firstbrokers Oy continuously manages the risk management, insurance and employee benefits of more than 200 companies, and has already served more than a thousand companies during its almost 40 years of operation. We've got you covered!