The Nation (Nigeria)
December 20, 2017
Defective products recall is causing insurers billions of dollars in claims, says a report by Allianz Global Corporate and Specialty (AGCS).
The report titled: “Product recall: Managing the impact of the new risk landscape” was the outcome of a survey covering 367 insurance product recall claims from 28 countries across 12 sectors between 2012 and the first half of the year.
The report, unveiled to reporters in Lagos by AGCS officials, noted that tougher regulation, global supply chains, materials from fewer suppliers and consumer awareness contributed to recalls.
According to AGCS’s claims analysis, the average cost of the significant recall is $12 million.
The automotive industry was most impacted, followed by the food and beverage sector.
The report states that emerging triggers include recalls for ethical reasons, cyber recalls from security vulnerabilities or hackers manipulating products, and social media.
A faulty pedal, the report said, caused a car to inadvertently accelerate and that contaminated peanuts could result in a 25% reduction in sales. Each of these incidents triggered major product recalls, resulting in huge losses, it added.
AGCS warned that a product-related risk is one of the biggest perils, with recall exposures increasing over the past decade, and could cause more losses. It highlighted the automotive industry as the most impacted, followed by food and beverage and information technology/electronics.
AGCS Head of Global Crisis Management, Christof Bentele, said: “We are seeing record levels of recall activity in size and cost. Tougher regulation and harsher penalties, the rise of large multi-national corporations and complex global supply chains, growing consumer awareness, impact of economic pressures in research and development (R and D) and production and even growth of social media are just some of the contributing factors behind this.
“Overall, defective product or work is the major cause of recall claims, followed by product contamination with the average cost of significant incident in excess of S$12 million €10.5 million, with the costs from the largest events far exceeding this total,” he said.
“Automotive recalls were the most expensive and large-scale due to their “ripple effect” accounting for over 70% of the losses analyzed, which is not surprising given recent record levels of activity in both the United States and Europe.
AGCS Regional Head of Liability, Central and Eastern Europe, Carsten Krieglstein, said more recalls would emanate from the automotive industry.
He said this was caused by complex engineering, reduced product testing times, outsourcing and increasing cost pressures, noting that the technological shift in the automotive industry towards electric and autonomous mobility would create further recall risks.
The report cites one of the largest recalls in the auto industry—defective airbags—expected to result in 70 million units across about 19 manufacturers. Costs have been estimated at S$25 billion.
It added: “This incident exemplifies the growing ripple effect which impacts the automotive sector, but also other industries. Given the use of many common components, a single recall can impact a whole industry.
“Food and beverage is the second most impacted sector, accounting for 16% of analyzed losses with the average cost of a significant product recall claim almost S$9.5 million or €8 million. Undeclared allergens, including mislabeling incidents and pathogens, are a major issue, as is contamination from glass, plastic and metal parts.
“Malicious tampering and even extortion incidents pose an increasing threat, as well as the growth of food fraud, which has become a major issue, resulting in reputational damage and major losses, as seen in the horse meat scandal in Europe four years ago.”
The report also notes that products from Asia would continue to account for a disproportionate number of recalls in the US and Europe, reflecting the eastwards shift in global supply chains and historically weaker quality controls in some countries. future recall risks.
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