Background. We predict product recall rates will climb thanks to complex global supply chains, adoption of automation, inconsistent regulation across jurisdictions and the COVID-19 pandemic. In addition, consumers are becoming more interested in product safety, health and ESG (environmental, social and governance) issues, with social media groups quickly spreading news of potential product deficiencies and recalls.
"Smart" and "connected" products, which allow product tracking and ongoing consumer contact through a manufacturer's app, website or subscription service, are leading to additional consumer demands and recall expectations. We're seeing regulators become more active, leading to greater scrutiny, tougher rules and more product recalls. Finally, class action lawyers are creatively seeding disputes.
Impact. A product recall can affect any company that manufactures or distributes a product. The costs can be catastrophic, including notification; shipping; repair or replacement; changes to design and manufacturing; brand damage; and defence costs. While many companies believe their commercial general liability policy will cover product recalls, others are being advised there's an insurance gap. We predict 2022 will see more businesses recognizing the benefit of product recall insurance, which can cover financial losses due to a recall and often offers pre- and post-event consulting services to reduce the risk of a recall and minimize the impact if one occurs.
Top tip. Your legal team is a valuable source of insight on legal exposure when it comes to product liability and regulatory compliance in general, and managing product recalls in particular. Include experts in products law when conducting insurance reviews and risk analyses, as well as when your business changes its processes, products and portfolio.
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