December 6, 2017 by Staff
A new report from Allianz Global Corporate & Specialty (AGCS) says that product-related risks are on the rise, given the growing list of costly product recalls over the past 10 years.
Product Recall: Managing The Impact of the New Risk Landscape collects data from 367 product recall insurance claims from 28 countries and 12 different sectors that occurred between 2012 and the first half of 2017.
“Product recalls have risen steadily in the past decade,” Christof Bentele, the head of global crisis management at AGCS, said in a media release. “We are seeing record levels of recall activity in size and cost today.”
The report found that the leading causes of recall claims are overall defective products, followed by product contamination. The average cost of a significant event (with recall claims equal to or greater than approximately US$5.9 million) is more than US$12 million, with large events costing far more than that.
The automotive sector is most impacted by product recalls (a recent airbag recall is estimated to have cost close to US$25 billion), followed by the food and beverage industry, and the IT/electronics sector.
Seventy percent of the value of the losses analyzed in the report were related to automotive recalls.
“We see an increasing number of recalls with higher units in the automotive industry,” said Carsten Krieglstein, regional head of liability, Central & Eastern Europe, AGCS. “This is driven by factors such as more complex engineering, reduced product testing times, outsourcing of R&D and increasing cost pressures.”
The report also predicts that “cyber recalls” could be an emerging risk, since hackers could theoretically contaminate products by taking over automated machinery in production plants.
“Cyber is currently an underestimated risk,” Bentele said. “We have already seen recalls due to cyber security vulnerabilities in cars and cameras.”
This story was originally published by Canadian Insurance Top Broker.