Product recalls pose great financial risk for Asian businesses, says Allianz

Recalls likely to have ripple effect, magnifying costs and potentially leading to bankruptcy

Product recalls pose great financial risk for Asian businesses, says Allianz

Insurance News

By Gabriel Olano

Defective products and work-related incidents are the largest generator of liability losses for businesses, according to global insurer Allianz.

These factors, especially recall claims and product liability claims, have inflicted more than US$2 billion in insured losses in the past five years, a report by Allianz Global Corporate & Specialty (AGCS) outlined.

“Defective products not only pose a serious safety risk to the public but can also cause significant financial damage to the companies responsible,” the report said.

Particular focus was given to Asia, given the massive quantity of products being manufactured in Asian markets such as China and Vietnam.

“Asia continues to account for a disproportionate number of recalls in the US and Europe, due to historically weaker quality controls in some countries,” according to AGCS.

For example, products manufactured in China were revealed to be more than three times more likely to be involved in recall cases than those made in the US. Other major Asian economies, such as South Korea and Japan, were linked to major recall scandals, such as those involving Samsung’s Galaxy Note 7 and Takata’s defective airbags.

The report added that while the average cost of a product recall is US$12 million, there is usually a ripple effect which can trigger additional costs. One such incident was Japanese manufacturer Takata’s product recalls inflicting an estimated US$25 billion in losses, leading to its bankruptcy.

According to AGCS, the automotive industry is the most vulnerable to recalls, followed by the food and beverage industry.

AGCS advised businesses that being prepared before a recall event happens can greatly reduce the financial and reputational damage such an event would cause. Specialised product recall insurance can also help firms recover in case a recall does happen, covering various costs, including business interruption and public relations crisis management.

“There is now much more attention on how companies deal with defective or contaminated products, how responsive they are and how resilient their safety systems are,” said Christof Bentele, head of global crisis management at AGCS. “More than ever consumers are also part of the agenda and are driving company behaviour by making their choices subject to how companies deal with crises.”

He added: “A company that embraces crisis management, and makes it part of its DNA, is far less likely to suffer a major incident.”

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