Tougher regulation, global supply chains, materials from fewer suppliers and consumer awareness are contributing to a rise in recalls making defective product risk an increasing peril for companies, according to Allianz Global Corporate & Specialty (AGCS) report.
While the average cost of significant recall is $12 million, “ripple effect” events can cost billions.
Recall exposures have significantly increased over the past decade, making product-related risk one of the biggest perils facing businesses today as the potential for larger and more complex losses has grown, Allianz warns.
“Product recalls have risen steadily in the past decade. We are seeing record levels of recall activity in size and cost today,” says Christof Bentele, Head of Global Crisis Management at AGCS.
“Tougher regulation and harsher penalties, the rise of large multi-national corporations and complex global supply chains, growing consumer awareness, impact of economic pressures in research and development (R&D) and production and even growth of social media are just some of the contributing factors behind this.”
Carsten Krieglstein, Regional Head of Liability, Central & Eastern Europe, AGCS, added; “we see an increasing number of recalls with higher units in the automotive industry. This is driven by factors such as more complex engineering, reduced product testing times, outsourcing of R&D and increasing cost pressures. The technological shift in the automotive industry towards electric and autonomous mobility will create further recall risks.”
Other emerging triggers include recalls for ethical reasons, cyber recalls from security vulnerabilities or hackers manipulating products, and social media.
According to the Allianz report, the automotive industry is most impacted, followed by the food and beverage sector.
