Product liability and product recall are main drivers for business liability losses in the UK
Wednesday April 19 2017
A defective product recalled around the world has the potential to result in larger and more complex losses for businesses than ever before, warns Allianz Global Corporate & Specialty
The report identifies defective products or work as the largest cause of liability loss for businesses, accounting for near to half (43%) of the value of all claims in the UK. The average value of a defective product/work claim in the UK is in excess of £312,000, with the cost of product recalls being a major driver.
“The number of recalls in the pharmaceutical, engineering, food, automotive, electronics and energy/utility industries has been steadily rising with increased focus on product and workplace safety, as well as more proactive regulation,” says Stewart Eaton, Head of Product Recall for AGCS Regional Unit London (RUL).
“The emissions testing issues in the automotive industry are an example of just how complex liability losses can become, giving rise to multi-jurisdictional regulatory investigations and litigation. Regulators around the world have become tougher, making businesses and their directors more accountable, while investor activism has been on the rise. At the same time, consumer protection laws have been strengthened in many countries and US-style litigation continues to spread around the globe.”
Auto recalls getting bigger
Product recalls in the automotive sector are getting bigger with a renewed focus on safety by regulators and with attempts to bring down the number of motor deaths,” says Eaton. This upwards trend is mirrored across Europe. According to Stericycle Expert Solutions the total number of automotive recall events in 2016 was 415, a jump of 76% over 2015 and the highest total recorded since the European Union’s rapid alert system (RAPEX), which warns about non-food products that pose a risk to health and safety, began.
Food and beverage industry particularly exposed to recalls
In Europe the number of recalls/notifications in Q4, 2016 also increased by 12% to 787 – the highest for two years. “Growing supply chains, tightening of safety regulations and faster dissemination of information are all factors in the increasing number of incidents, which can have a devastating impact on a company’s reputation,” says Eaton. “However, if a recall is professionally managed it can help to minimise damage. Contaminated products insurance can protect businesses against financial losses resulting from the recall of a product following either accidental or malicious contamination.”
Technology to drive big shift in liability losses
In future, digitalisation and growing use of new technologies are likely to lead to a further shift in the liability risk landscape. Overall, the frequency of claims is expected to decline as trends such as autonomous driving improve road safety. However, technology will also bring new liability threats such as increasing cyber, product liability and recall risk.
Automation is likely to lead to increased product liability risk for machinery and component manufacturers and software providers, for example. New data protection laws around misuse or breaches of data will increase cyber liability for companies, potentially resulting in heavy fines and penalties, particularly in Europe from 2018, but also elsewhere.