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Here’s why recall and liability claim trends are on the rise

As we head into a new year, we’ve spotted a new trend impacting companies across all industries: product recalls are becoming more frequent, complex, and expensive.

Based on our experience and analysis of the data, advanced technology, more efficient processes, complex supply chains and increasingly sophisticated products are creating more risks and challenges. Combine that with regulators’ increased focus on enforcing product safety policies globally, and it’s highly likely this global trend will continue.

As a result, recall and liability claim trends are also on the rise. In fact, Property Casualty 360 reports we’re experiencing some of the largest claims payouts the U.S. has seen in a very long time.

The automotive sector continues to account for most of the increase in product liability and product recall losses. In addition to a growing number of auto recalls, manufacturing expenses have also increased, leading to higher recall and liability claims costs.

Recall costs are significant and rising

A wide range of expenses are associated with recalls including notifying consumers and customers, retrieving the product from the market, repairs, replacement parts, and even testing to determine the source of the issue. Repairing reputational damage – through crisis communications, public relations, advertising and social media – is another expense to consider.

As you may have already experienced, recalls come with a significant price tag. The average cost, according to a study by Willis Towers Watson, is currently around $10M. Depending on your company’s financial situation, expenses this significant can be detrimental to your survival.

In response to the COVID-19 constraints businesses are experiencing, many that have relied on business-to-business models in the past have switched to an effort that is also direct-to-consumer, according to Marty Detmer, Product Recall & Contamination Broker at Aon. While this is helping companies revive revenue in the midst of the pandemic, it is also bringing with it increased responsibility and risk in the event of a recall. It is up to you to take action and notify the hundreds or thousands of consumers who you’re now in business with. This further complicates and raises the prices of the recall process.

Demand for recall insurance is on the rise

Demand for product recall insurance is also on the rise, according to Richard Hopley, Partner at UK based insurance law firm Cooley. Recall insurance is crucial for all companies manufacturing and distributing products, no matter the industry. There are several types of recall insurance policies available to help cover the direct and indirect expenses of recalls. For example:

  • Product Recall Insurance covers expenses needed to execute a recall and retrieve a product from the market (i.e. customer notification, shipping costs, disposal costs, etc.)
  • Product Liability Insurance protects against financial expenses that are a result of legal ramifications associated with injuries or damages resulting from the use of a product.

As product safety risks and recalls have risen, so has the demand for recall insurance. With the increasing complexity of the regulatory environment and the challenges COVID-19 presents, the best thing you can do is check your insurance plans to ensure they will cover risks associated with your current products and services and reassess your recall and crisis plans so they are up to date. By doing so, you can mitigate the financial risks and reputational damage a potential recall may cause.

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