A version of this article ran in the December issue of Bicycle Retailer & Industry News.
By Scott Chapin, Marsh & McLennan Agency
Mostly due to the popularity of e-bikes, the risks and exposures bicycle retailers face are much greater than 15 years ago. E-bikes are not a new exposure, but now every major brand sells them and there are countless new e-bike brands.
Most carriers that insure bicycle retailers are not comfortable with e-bikes. Often, they don't specialize in insuring bike shops and have chosen not to renew any retailer that sells e-bikes.
As manager of Marsh & McLennan Agency's bicycle industry insurance programs, I have worked exclusively with bicycle retailers and manufacturers since 2007.
We have helped the carriers we represent understand that e-bike sales growth will continue and made sure carriers are comfortable with the risks associated with e-bikes.
The obvious risks are injuries caused by defective e-bikes or by riding at high speeds, and fires caused by damaged, poorly made or untested batteries and electrical systems.
Several years ago, I asked one of my e-bike specialty store clients which brands they sold. I had only heard of two of the 14 brands mentioned and had a hunch the shop was inadvertently selling products that did not have any product liability coverage.
I requested that the client ask these brands for a certificate of insurance, which shows proof of product liability coverage. Seven of the brands either didn't have any coverage or were insured with a foreign insurance carrier.
In the event of a product failure causing bodily injury, the shop and its liability carrier would end up with this liability and subsequent claim. My client decided not to work with those brands due to the risk.
It's 2022, and this is still happening. Recently, two retailers I work with requested certificates from several foreign-domiciled brands and found out that three had no product liability coverage. They also weren't doing third-party testing of the bikes and electrical components. This was a real eye-opener for the shop.
Retailers assume that when a product sales representative calls, their products have liability coverage. Most business owner's policies are written with the assumption that this is the case. Retail business owner's policies are not priced or underwritten for the manufacturing exposure.
As a retailer, a good way to protect yourself is to ask some of the brands that are new or foreign-owned for a certificate of insurance. You do not need to ask this for established, larger brands or suppliers.
Many may push back, which can be a sign that those brands don't have any coverage or coverage for the U.S. marketplace. So, what should shops do regarding servicing some of these unknown brands?
Often, the retailers do not have a contact as they are not a dealer. We have seen retailers take on the lead liability due to service, even on the non-electrical side, because the brand doesn't carry insurance. This is frustrating and potentially disastrous.
Many retailers ask, "Would I be covered for working on these types of bikes?" If there is liability there is coverage, but is it worth the risk? At MMA, we receive many requests for insurance quotes from shops that were non-renewed due to liability claims caused by their service department.
Often, their premium will increase exponentially if we cannot provide coverage in a "standard" market. Admitted or standard markets differ from wholesale markets that provide coverages outside of the risk preference of admitted or standard carriers.
Working with bicycle brands and retailers allows me to see issues that might otherwise be missed. We receive product liability inquiries from manufacturers that distribute direct to consumer, omnichannel, and via dealers.
Many have been selling in the U.S. without coverage, and they choose not to pay the premium as it hasn't been required. Some of these bikes may be in your store right now.
The other "elephant in the room'' is the fire potential caused by cheaply manufactured electrical systems such as motors, batteries and chargers. Generally, property damage is not caused by batteries that have been tested to a third-party standard.
Rather, it is e-bikes with poor-quality electronics that are causing the majority of the fires. These claims are unnerving. Not bleeding brakes properly creates a huge liability hazard, but only one person is affected.
An electrical fire can impact a lot of people. A fire in a garage is relatively small, but a fire in an apartment building can be catastrophic. So, it's best to be careful what you work on.
Many shops require their customers to remove the battery from the bike before doing any work on the bicycle. Many only work on brands they sell and have been trained on.
The last in the stream of commerce to work on a product takes on the most liability, and when a brand doesn't have any coverage, the retailer and their insurance carrier will certainly be involved.
When it comes to e-bikes, shops need to be aware of the hidden risks associated with selling and servicing certain brands. Make sure you're doing what you can to protect your shops so you and your customers can enjoy miles of safe, fun riding.
Scott Chapin is a business insurance advisor with Marsh McLennan Agency. He has nearly 30 years of experience in the industry and has built insurance programs for both bike shops and manufacturers.
