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Liability Insurance
Sunday, February 1, 2009
Consumer protection

Things are about to get a lot tougher for product suppliers, retailers and producers in 2009 due to the expected promulgation of the Consumer Protection bill this year.

The bill introduces strict product liability for suppliers (by as any business that markets goods and services). Previously product liability was limited to producers of goods, but under the new definition producers, importers, distributors and retailers are included.
Suppliers, be they producer, distributor or retailer, can now be held liable for any damage caused by goods regardless of fault on the part of the supplier. Contrary to the current law, no negligence needs to be proved. There just needs to be a causal link between harm, as defined by the bill, and the defective product.
This introduces the possibility of a rise in product recalls.
“One of the biggest threats to a company’s bottom line is product recall. The costs of recalling a product can be astronomical and this, in addition to reputational damage, could force a business to close its doors,” says Keith Marshall, Regional Manager, Liabilities Group at AIG South Africa.
In the UK, where similar regulations are in effect, overall product recall increased 125% from 2004 to 2007. In the case of non-food consumer goods, this figure was 894%. The cost of these recalls is huge. In 2006, a salmonella scare forced Cadbury Schweppes to recall more than 1 million of its chocolate bars, costing an estimated £45 million (R665 million).
“We have been watching developments on a global scale and South Africa is likely to follow a similar trajectory. Due to strict product liability, businesses need to understand the entire supply chain and be extra diligent regarding quality control. But they also need to ensure they are adequately covered,” says Marshall.
In response to strict liability provisions, insurance companies are developing solutions to protect businesses from the devastating effects of recalls.
Product recall policies generally cover the key expense areas and also provide the expertise of independent recall consultants to guide the company through the critical first few weeks of a product recall.
A typical policy covers costs to inspect, withdraw, or destroy the product, as well as overtime and additional personnel costs. It also includes expenses related to communication, such as advertising and media messaging, which is vital to restore confidence and maintain supply contracts and business relationships.
As manufacturers increasingly source ingredients, components and packaging from further afield, they have less control over the supply chain. In light of this, AIG provides a global loss control service where in-house experts check the supply chain and perform quality control, ensuring businesses receive sound goods. This service aims to limit product recall and minimise claims.
“With goods originating from all over the world, including countries such as China where quality standards cannot be guaranteed, it is worth being properly covered,” adds Marshall. “Rather let your insurance company protect you against liability costs.”

Copyright © Insurance Times and Investments® Vol:22.2 1st February, 2009
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