Study determines damage in the millions

Expensive mistakes: A defective pedal causes a car to accelerate unintentionally. The processing of defective peanuts causes a 25 percent drop in sales across the industry. Each of these incidents triggered major product recalls that resulted in billions of dollars in losses. Product-related risk is one of the greatest threats facing companies today. Recall risks have increased significantly over the past decade and the potential for greater and more complex damage continues to rise, warns industry insurer Allianz Global Corporate & Specialty (AGCS) in a new report.

The evaluation of 367 insurance claims worldwide shows that the automotive industry is most affected by product recalls, followed by the food and beverage sector.

Increased requirements
Recalls have been steadily increasing over the past decade. "We are now seeing record numbers of recalls in terms of size and cost," says Christof Bentele, Head of Global Crisis Management at AGCS. He sees multiple factors contributing to this, including stricter regulation and tougher penalties, the rise of large multinational corporations and more complex global supply chains, growing consumer awareness, the impact of economic pressures in research, development and manufacturing, and the increasing importance of social media. The study, "Product Recall: Managing The Im-pact of the New Risk Landscape," analyzes a total of 367 product recall claims from 28 countries across 12 industries between 2012 and the first half of 2017. The main cause of recalls is a defective product or design, followed by product contamination. The IT/electronics sector is the third most affected industry after the automotive and food and beverage industries, according to the AGCS claims analysis.

Product recall in the Swiss food and beverage industry
The food and beverage industry is the second most affected sector, accounting for 16 percent of the losses analyzed. The average cost of a significant product recall is almost €8 million. Undeclared allergens (including ingredient mislabeling) and pathogens are a big problem, as is contamination from glass, plastic and metal parts. "Another driver in the market is the loss experience of the past, which is directly attributable to product recalls or product tampering," says Müller, Country Manager AGCS Switzerland.

Early crisis management
Forward planning and preparation can have a major impact on the size of a recall and the financial and reputational damage. As part of a holistic risk management approach, specialist product recall insurance can help companies recover more quickly by covering the costs of a recall, including business interruption. Such insurance policies also provide access to crisis management services and specialist consultants. These review a company's procedures and assist with regulatory liaison, communications, product tracing and laboratory testing of contaminated goods, including genome sequencing and DNA testing, in the event of product contamination worldwide.