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Pharmaceutical And Food & Beverage Product Liability and Product Recalls On The Increase

  • Increasing potential for larger, more complex and international claims resulting from global product recalls
  • Auto recalls getting bigger, food and beverage industry particularly exposed to recalls – in Europe the number of recalls/notifications in Q4, 2016 increased by 12% – the highest for two years
  • Defective product/ work related claims increase by 65% in Europe between 2011 and 2015 (2016 claims are on course to equal or surpass 2015 as of September 2016)

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 (AGCS) in its Global Claims Review: Liability in Focus.

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.

Global Claims Review: Liability in Focus analyses over 100,000 corporate liability insurance claims from more than 100 countries, with a total value of €8.85bn (US$9.3bn), paid by AGCS, and other insurers, between 2011 and 2016. Over 80% of losses arise from ten causes.

Process Industry Informer

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