The report ‘Product Recall: Managing The Impact of the New Risk Landscape’ analysed 367 insurance industry product recall claims from 28 countries across 12 industry sectors between 2012 and the first half of 2017.
Food and beverage was the second most impacted sector, behind the automotive industry, accounting for 16% of analysed losses.
The average cost of a significant product recall claim hit almost US$9.5M (£7.1M). Undeclared allergens (including mislabelling incidents) and pathogens were a major issue, as was contamination from glass, plastic and metal parts.
Malicious tampering
The report said that malicious tampering and extortion incidents posed an increasing threat. It also highlighted the growth of food fraud, which can result in reputational damage and major losses, as seen in the horsemeat scandal in Europe five years ago.
The report also noted that products from Asia continued to account for a disproportionate number of recalls in the US and Europe, reflecting the eastwards shift in global supply chains.
The result has been that regulatory scrutiny has been increasing around the world with many countries implementing stricter product safety laws, particularly in the food sector.
The report said that during 2016, across North America and Europe, allergens had become a significant public health issue.
Toxins in consumer products were another cause of concern. In August 2017, insecticide found in Dutch eggs triggered a massive recall of egg products in 16 European countries.
‘Record levels of recall activity’
“Product recalls have risen steadily in the past decade. We are seeing record levels of recall activity in size and cost today,” said Christof Bentele, head of global crisis management at AGCS.
“Tougher regulation and harsher penalties, the rise of large multinational corporations and complex global supply chains, growing consumer awareness, impact of economic pressures in research and development and production and even growth of social media are just some of the contributing factors behind this.”
Recalls for ethical and reputational, rather than safety, reasons were also on the rise, such as in cases where food, for example halal or vegan, had been mislabelled or counterfeited.
“There will be incidents when there is no legal requirement to recall but it is the right thing to do. This is a genuine business risk which companies have to be prepared for,” Bentele added.