Product Recall Risks Growing in Size and Number as Technology Drives New Triggers, Warns Allianz

Contify Insurance News

December 6, 2017

A faulty pedal causes a car to inadvertently accelerate. An outbreak of contaminated peanuts results in a 25% industry-wide reduction in sales. Each of these incidents triggered major product recalls, resulting in billion dollar losses. Product-related risk is one of the biggest perils facing businesses today, with recall exposures having increased significantly over the past decade, bringing the potential for larger and more complex losses than ever before, warns insurer Allianz Global Corporate & Specialty (AGCS) in a new report. It highlights the automotive industry as being the most impacted by product recalls, followed by the food and beverage sector, based on analysis of insurance claims.

“Product recalls have risen steadily in the past decade. We are seeing record levels of recall activity in size and cost today,” says Christof Bentele, Head of Global Crisis Management at AGCS. “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 R&D and production and even growth of social media are just some of the contributing factors behind this.”

Defective products not only pose a serious safety risk to the public but can also cause significant financial damage to the companies responsible. Defective product/work-related incidents have caused insured losses in excess of $2 billion over the past five years, making them the largest generator of liability losses, according to analysis of insurance industry claims by AGCS. Recall claims are a major contributor to this total, alongside product liability claims.

The report “Product Recall: Managing the Impact of the New Risk Landscape” analyzes 367 insurance industry product recall claims from 28 countries across 12 industry sectors between 2012 and the first half of 2017. Overall defective product or work is the major cause of recall claims, followed by product contamination. The average cost of a significant incident is in excess of $12 million (10.5 million euros), with the costs from the largest events far exceeding this total. Over 50% of losses arise from 10 incidents. The IT/electronics sector is the third most affected industry after automotive and food and beverage, according to the claims analysis.

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