The recent recall of more than 420 products thought to be contaminated with Sudan 1 in the UK — at a cost of £100m for all parties — illustrates the large risks associated with product liability and recall.
It serves as a reminder that brands can be irreparably damaged if organisations fail to plan and manage recalls effectively.
It also highlights the exclusions in stand-alone recall insurance policies.
Product liability risks are increasing for many firms, given the tendency to source components or food ingredients from parts of the world that may not have strong regulations to reduce defects.
An electronics manufacturer, for example, may not be entirely to blame for a defective component used in its products that was sourced from another country, but in the eyes of consumers it may be held responsible for a breach of safety.
New product safety regulation also increases liability. In the EU, legislation in the last few years has placed new obligations on manufacturers to share information and report any product safety issues in order for recall decisions to be made.
Critical questions you need to consider
- How many product recalls have you experienced in the last five years?
- Has a recall been caused by: a purposeful contamination, an accidental contamination, a tooling issue, a raw material issue, or some other issue?
- Did the recall occur in a business that was recently acquired?
- What process or mechanism do you have in place for identifying a reportable issue?
- Are all your potential risks covered by your product recall insurance? Does it cover catastrophic loss?
- What type of manufacturing processes and controls, such as six sigma and lean manufacturing, are in place in your manufacturing facilities?
- Are you on top of recent legislative changes in all the markets in which you operate/distribute?