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Product Recall Risks Growing In Size & Number, Technology Drives New Triggers- Allianz

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By peter oluka

Defective product risk is an increasing peril for companies, causing significant financial damage, according to a Allianz Global Corporate & Specialty (AGCS) report.

A faulty pedal causes a car to inadvertently accelerate. An outbreak of contaminated peanuts results in a 25% industry-wide reduction in sales. Each of these incidents triggered major product recalls, resulting in billion dollar losses.

Product-related risk is one of the biggest perils facing businesses today, with recall exposures having increased significantly over the past decade, bringing the potential for larger and more complex losses than ever before, warns insurer Allianz Global Corporate & Specialty (AGCS) in a new report.

It highlights the automotive industry as being the most impacted by product recalls, followed by the food and beverage sector, based on analysis of insurance claims.

“Product recalls have risen steadily in the past decade. We are seeing record levels of recall activity in size and cost today,” said Christof Bentele, head of Global Crisis Management at AGCS. “Tougher regulation and harsher penalties, the rise of large multi-national corporations and complex global supply chains, growing consumer awareness, impact of economic pressures in research and development (R&D) and production and even growth of social media are just some of the contributing factors behind this.”

Defective products not only pose a serious safety risk to the public but can also cause significant financial damage to the companies responsible.

Defective product/work-related incidents have caused insured losses in excess of US$2 billion over the past five years, making them the largest generator of liability losses, according to analysis, of insurance industry claims by AGCS.

Recall claims are a major contributor to this total, alongside product liability claims.

The report “Product Recall: Managing The Impact of the New Risk Landscape” analyzes 367 insurance industry product recall claims from 28 countries across 12 industry sectors between 2012 and the first half of 2017.

Overall defective product or work is the major cause of recall claims, followed by product contamination. The average cost of a significant, incident is in excess of US$12 million (€10.5 million), with the costs from the largest events far exceeding this total.

Over 50% of losses arise from 10 incidents. The IT/electronics sector is the third most affected industry after automotive and food and beverage, according to the claims analysis.

Automotive recalls most expensive and large-scale due to “ripple effect”

Automotive recalls account for over 70% of the value of all losses analyzed, which is unsurprising given recent record levels of activity in both the US and Europe.

“We see an increasing number of recalls with higher units in the automotive industry,” said Carsten Krieglstein, regional head of Liability, Central & Eastern Europe, AGCS. “This is driven by factors such as more complex engineering, reduced product testing times, outsourcing of R&D and increasing cost pressures. The technological shift in the automotive industry towards electric and autonomous mobility will create further recall risks.”

One of the largest recalls to hit the auto industry to date, involving defective airbags, is expected to result in some 60 to 70 million units across at least 19 manufacturers being recalled worldwide. Costs have been estimated at close to US$25 billion.

This incident exemplifies the growing “ripple effect” which impacts the automotive sector, but also other industries. Given the use of many common components, a single recall can impact a whole industry.

Food and beverage is the second most impacted sector, accounting for 16% of analyzed losses with the average cost of a significant product recall claim almost US$9.5 million (€8 million). Undeclared allergens (including mislabeling incidents) and pathogens are a major issue, as is contamination from glass, plastic and metal parts.

Malicious tampering and even extortion incidents pose an increasing threat, as well as the growth of “food fraud”, which has become a major issue, resulting in reputational damage and major losses, as seen in the horse meat scandal in Europe four years ago.

The report also notes that products from Asia continue to account for a disproportionate number of recalls in the US and Europe, reflecting the eastwards shift in global supply chains and historically weaker quality controls in some countries.

Yet increasing safety regulation and consumer awareness is ensuring recall activity is also rising across Asia.

Allianz Global Corporate & Specialty Product Recall Risk Cyber

Technology to prevent and drive future recall risks

The report also identifies emerging recall triggers that will drive future risks and claims, largely stemming from new technologies.

Advances in product testing such as genome-sequencing technology will make it easier for regulators and manufacturers to trace contaminated products in future, potentially saving lives, but also potentially spiking litigation activity, as liable parties can be more easily identified.

Cyber recalls may become an increasing reality. Hackers could change or contaminate a product by controlling machinery in automated production plants.

“Cyber is currently an underestimated risk,” said Bentele. “We have already seen recalls due to cyber security vulnerabilities in cars and cameras.” Innovative but untested technologies such as artificial intelligence and nanotechnology could also transform recall risk.

Social media is a fast and effective way of communicating with customers but can also exacerbate recall risk if not well-managed. “Social media is a real game-changer for product recall,” says Stewart Eaton, Head of Product Recall, UK, AGCS. “An erroneous post or tweet can cause reputational damage and directly impact the size of a recall, meaning companies need to react faster than before.”

Recalls for ethical and reputational, rather than safety, reasons are also on the rise, such as in cases where child or slave labor has been used in the supply chain or where food such as halal or vegan has been mislabeled or counterfeited. “There will be incidents when there is no legal requirement to recall but it is the right thing to do. This is a genuine business risk which companies have to be prepared for,” Bentele said.

Pre-event crisis management as part of corporate DNA

Pre-event planning and preparation can have a big impact on the size of a recall and the financial and reputational damage sustained.

As part of a holistic risk management program, specialized product recall insurance can help businesses recover faster by covering the costs of a recall, including business interruption. It also provides access to crisis management services, and consultants, which can test a company’s procedures and offer global support in areas such as regulatory liaison, communications, product traceability and tampering investigations and even genome sequencing and DNA testing to understand a product contamination.

“There is now much more attention on how companies deal with defective or contaminated products, how responsive they are and how resilient their safety systems are. More than ever consumers are also part of the agenda and are driving company behavior by making their choices subject to how companies deal with crises. A company that embraces crisis management, and makes it part of its DNA, is far less likely to suffer a major incidence,” said Bentele.

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Telecom

Telcos, ISPs Frustrating IPv6 Adoption by Networks

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There are indications that telecommunications operators and traditional internet service providers (ISPs) in the country are frustrating adoption of Internet Protocol version six (IPv6) by other networks, Nigeria CommunicationsWeek has learnt.

 

IPv6 is touted as the latest level of the Internet Protocol (IP) and is now included as part of IP support in many products including the major computer operating systems.

 

A network engineer with a university who does not want to be named expressed the university’s frustration to use its IPv6 address by the telecommunications operator providing them with internet connectivity because their network is not compactable with IPv6.

 

Providing more insight on this, Mohammed Rudman, chairman, IPv6 Council Nigeria, said that most telecommunications operators and internet service providers in the country have not adopted IPv6 which raises the issue of compatibility with other networks they are offering internet connectivity service.

 

“Upstream service providers in the country are not offering IPv6 on their network. For instance, among networks that bring submarine cable to the country, it is only MainOne network that have adopted IPv6 on its network. This is not good for the country’s effort to adopt IPv6,” he said.

 

Nigeria CommunicationsWeek investigations revealed that there are 32 networks in the country which are made up of telecommunications operators, internet service providers, universities, banks, oil companies among other organizations that have acquired IPv6, with only three networks using it as at today, they include MainOne Cable Company, Internet Solution Limited, and ipNX Nigeria Limited.

 

Rudman noted that while other African countries are making steady progress in the adoption of IPv6 Nigeria lags behind because of their use of Network Address Translation (NAT). NAT allows networks to convert private addresses of internet protocol (IP) to public addresses thereby making the country to consume less resource of IP addresses.

 

He added that the use of NAT is responsible for Nigeria’s low ranking in consumption of IP addresses on the internet, even as the country ranks amongst the highest in Internet penetration in world and number one in Africa.

 

Niyi Yusuf, country managing director, Accenture Nigeria, urges for regulatory push in the adoption of IPv6, he cited the case in banking sector where CBN issued a directive mandating banks to adopt tier 111 Data Centre which led them into outsourcing of data centre business to commercial data centre operators with Tier 111 certification.

 

Chris Uwaje, vice chairman, IPV6 Council Nigeria, urged Nigeria to focus on the awareness of the challenges, opportunities and benefits of the global trends of IPv6 and the future of Internet.

 

“We must activate planning processes now and initiate partnerships among business, government, academia and other members of the community. To accelerate the diffusion of IPv6, regulators should encourage the ISPs with focused incentives for constructive IPv6 transition and migration,” he said.

 

He also called for the establishment of Regional IPv6 Task force Workgroup’s as a “Train the Trainer” strategy for accelerated diffusion of the Internet Protocol Version 6 in Africa.

 

 

 

 

 

 

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NCC to Mulls 14 Days Window for Unused Data Roll Over

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Nigerian Communications Commission, NCC, will soon issue a directive to Mobile Network Operators (MNOs) to allow 14 days window for telecom service consumers to roll over their unused data even when they do not renew at the expiration of the data plan.

 

This is giving concrete expression to the spirit of its declaration of 2017 as Year of Nigerian Telecom Consumer.

 

The Executive Vice Chairman/CEO of the Commission, Prof. Umar Danbatta, stated this recenly in Port Harcourt at the programme commemorating the NCC Day at the ongoing Port Harcourt International Trade Fair, where he was represented by Bashir Idris, NCC’s Head of Projects.

 

It is adequate to say that, once the direction is issued; there will be a cessation of the ongoing practice in which subscribers to certain data regimes lose their unused data whenever they failed to renew the data plan subscribed to at the expiration of the subscription period.

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NCC Fixes Handover of 9mobile, as Glo, Others Send EoI

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The Nigerian Communications Commission (NCC) has reiterated that the December 31 deadline for the handover of 9mobile to the preferred bidder is sacrosanct.

 

Globacom Limited, Bharti Airtel, Smile Telecoms Holdings, Helios Investment Partners LLP and Teleology Holdings Limited have all been shortlisted as the five bidders still in the running to buy 9mobile, the Nigeria’s fourth largest telecommunications provider, which ran into financial problem with some banks in July.

 

The companies were selected through a process conducted by Barclays Bank, the financial adviser to the creditor banks, on December 4.

 

But speaking to journalists on the sideline of the 82th edition of Telecoms Consumers Parliament in Abuja ON Thursday, Prof Umar Garba Danbatta, executive vice chairman of NCC, said the five shortlisted companies had been allowed to conduct due diligence on 9mobile.

 

Although Danbata did not give the names of the five firms, sources listed them as Airtel, Globacom, Smile, Helvis and Telelogy Holdings are the companies.

 

Prof Danbatta said the next stage of the sale process after due diligence would be for the firms evidence of strong financial commitment to buy 9mobile.

 

He said Nigerian authorities would not just handover 9mobile to any company, but to a very “technically and financially capable company.”

 

He assured that there would be seamless takeover of the company, and that whoever buys it would improve the fortune of the company.

 

He said: “As you are aware five bidders have emerged as I am talking to you and they have been allowed to access the data room of the 9mobile in order for them to get access to the financial situation of the company and subsequently make bid for the takeover of the company.

 

“But we will ensure that the takeover is done in a regulated manner, not a forceful manner. That is why the CBN and the NCC are supervising what is going on through the interim board that was jointly set up by the NCC and other partners.”

 

Meanwhile, the NCC boss has disclosed that the number of subscribers using the ‘Do Not Disturb’ had risen from 500,000 to 10million within eight months; underscoring the fact the campaign was achieving its objective.

 

He said the telecom consumer is the paymaster of the operators hence he should be treated as a king.

 

9mobile which was formerly Etisalat rebranded after its major owners in Abu Dhabi, United Arab Emirates, pulled out and a new board was inaugurated to run its affairs.

 

This was after failed negotiation with its lenders over a missed payment of the $1.2billion loan taken from a consortium of 13 Nigerian banks in 2013.

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