Product Recall Risks to Rise, According to Allianz

Allianz Global Corporate & Specialty (AGCS) released a new report on product recalls in a new landscape. The report notes that product recalls are risk-laden and can impact everyone along a supply chain, from the wholesaler and retailer to the manufacturer.

The report looks at 367 insurance product recalls across 12 sectors and 28 countries. Data from the report spans between 2012 and the first half of 2017.

Allianz found that product contamination was the second most common reason behind product recalls just behind defective products. The average cost of a recall was $12 million with large-scale recalls costing companies far more. Auto recalls have far-reaching costs that can swell to the $100+ million mark.

“Personal injuries that are caused by defective products are handled under ‘product liability law.’ Strict product liability, the law in most states, allows a legal action to be filed against designers, manufacturers, or sellers that sell any defective product that results in injury. Whether the injury is to the person who purchased the product or to the person who used it, the injured party can file a product liability lawsuit,” states the web site of Mainor Wirth.

The report found that 10 incidents accounted for over 50% of the losses in the study. The electronics and IT sector were the third most impacted sector. Automotive was the second impacted sector proceeded by only the food and beverage sector.

The study found that record levels of recalls are being experienced. A rise in global consumerism is to blame for some of the large-scale recalls. The number of product recalls has risen steadily over the past decade, according to Allianz.

Contributing factors, according to the report, include a rise in consumer awareness, social media and the spread of news, global supply chain complexity, multi-national corporations and together regulations.

Insurance losses over the past five years have swelled to $2 billion. Defective products and work-related incidents are the largest generators of liability losses. The report notes that just eight incidents cost over $50 billion in recalls.

Airbag errors were the biggest contributor to this figure with the 2015 airbag recalls, which are still being corrected by some manufacturers, costing $25 billion in total. Exploding phones cost $5 billion, arthritis drug cost $5 billion, auto ignition recalls cost $4 billion, faulty pedals cost $3 billion, hip hiccups cost $3 billion and another arthritis recall cost $3 billion. A peanut contamination recall cost $1 billion.

The “ripple” effect is to blame for larger product recalls, with the liability going down the supply chain. Global companies have a reach of millions, with a lot of companies sourcing their products from smaller entities.

A single recall can now have an impact on an entire industry, according to the report.

The Takata airbag recall, which has had a major impact on Honda, had a reach of 60 – 70 million units. The company is still trying to track down owners that have yet to have their airbags replaced.

Non-safety recalls are also on the rise, with companies recalling products found to be produced by child or slave labor.

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Melissa Thompson

Melissa is a mother of 2, lives in Utah, and writes for a multitude of sites. She is currently the EIC of and writes about health, wellness, and business topics.