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



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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Teleology Pays $50m, Set to Takeover 9mobile



Teleology has put finishing touches to its acquisition of 9mobile, Nigeria’s 4th telecom services provider, by paying $50m deposit, ahead of the deadline.


Ahead of the March 22 deadline set by the Financial Advisers, Teleology said it has transferred a non-refundable completion deposit of $50 million to the Trustee for the bank syndicate presently holding ownership of 9Mobile, a statement by Teleology said Thursday.


In the last few days, key executives of the organization have been deep in meetings with the Nigerian bank syndicate, the regulatory authorities and advisors.


These meetings have culminated in the signing of the Share Purchase Agreement (SPA) and other contractual documents pertaining to the acquisition, a statement by Teleology said.


But the Nigerian Communications Commission [NCC] has not issued official statement on this new claim of Teleology.


A similar claim was debunked by NCC last month. The regulator said it had yet to announce the telecom operator as the new owner of 9mobile.


But Teleology in the statement Thursday said it has detailed an ambitious plan of action that will guide its rapid overhaul not only of the network but all aspects of the operations.


According to Adrian Wood, Teleology’s Director and pioneer Managing Director of MTN Nigeria, “9mobile is transiting into a new phase that will be defined by optimal value delivery:  value to our employees, value to our customers, value to local communities and indeed to all stakeholders.”


He added that the new organization to emerge would be “engineering led and brand driven.”  In delivering service, “we will strive to ensure that 9Mobile operations deliver fulfillment to our customers, empowerment to local communities, protection to the vulnerable, and excellent rewards not only to our shareholders but to all stakeholders.


Mr. Wood added that Teleology has set out a 10-point plan that aggregates its mission and how it intends to turn the 9mobile organization around.


It plans to double the 9Mobile network with new 3G/4G specific cell sites as well as a several thousands of kilometers of fiber optic cable across the country.  It will drive a special program of rural internet coverage, focusing on 4G with broadband access planned for all of Nigeria’s 774 Local Government Areas.


Youth engagement and employment programs are also planned with all build contractors, distributors and consultants, he said, while investment in broadband internet access technologies which are completely new to Nigeria, are also planned.  Very importantly, he added, the 9Mobile network will be optimized for high speed and high capacity data including imaging, video, games, music, IPTV and more.


“Any 3-point plan or 3-dimension idea is naïve and completely missing the scope and complexity of the urgent Nigerian need to be brought into the 21st century broadband era”.


Teleology, he added, envisages an increase of 50% in direct employment in the new 9Mobile.  There is also an active plan to introduce within the first year, several million 4G-capable premium quality smartphones, at exceedingly affordable pricing.


“Nigerians should look forward to a new regime of intensely exciting and innovative brand loyalty rewards programs, from the new 9Mobile,” he said.


He disclosed that Teleology had entered into an alliance with Safaricom, the largest network operator in East Africa.  Safaricom is famous for its global “mpesa” mobile financial services system, which advances financial inclusion and supports the network with the highest operating efficiencies in Africa.


Coming at a period when competition in the Nigerian telecom industry has for some years been limited to price wars between the various GSM companies, clearly, Teleology’s coming will very likely herald a new era of intense competition and quest for market share among Nigeria’s telecom operators.


Teleology is promoted by a group of 12 telecom industry veterans with considerable experience not only in Nigeria and Africa but in the global telecom space as well.  The executive management for instance, boasts more than 337+ years of collective frontline operational management experience.


Mr. Wood used the opportunity to express thanks to Barclays Africa, the Financial Advisers to the transaction, the Nigerian bank syndicate, the fulsome backing and support of the NCC and CBN which made 9Mobile’s survival possible, and the loyal 9Mobile management and staff who carried on in the face of skepticism, doubt and negative market sentiment.


Mr. Wood assured that additional details including formal relaunch plans would be unveiled in due course.

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Spending on Cognitive/AI Systems to Reach $19.1 Billion in 2018- IDC



 New spending guide revealed by International Data Corporation (IDC) shows that worldwide spending on cognitive and artificial intelligence (AI) systems will reach $19.1 billion in 2018, an increase of 54.2% over the amount spent in 2017.


With industries investing aggressively in projects that utilize cognitive/AI software capabilities, the International Data Corporation (IDC) Worldwide Semiannual Cognitive Artificial Intelligence Systems Spending Guide forecasts cognitive and AI spending will grow to $52.2 billion in 2021 and achieve a compound annual growth rate (CAGR) of 46.2% over the 2016-2021 forecast period.


David Schubmehl, research director, Cognitive/Artificial Intelligence Systems at IDC, said “Interest and awareness of AI is at a fever pitch.


“Every industry and every organization should be evaluating AI to see how it will affect their business processes and go-to-market efficiencies.


“IDC has estimated that by 2019, 40% of digital transformation initiatives will use AI services and by 2021, 75% of enterprise applications will use AI.

“From predictions, recommendations, and advice to automated customer service agents and intelligent process automation, AI is changing the face of how we interact with computer systems.”


Retail will overtake banking in 2018 to become the industry leader in terms of cognitive/AI spending.


Retail firms will invest $3.4 billion this year on a range of AI use cases, including automated customer service agents, expert shopping advisors and product recommendations, and merchandising for omni channel operations.


Much of the $3.3 billion spent by the banking industry will go toward automated threat intelligence and prevention systems, fraud analysis and investigation, and program advisors and recommendation systems.


Discrete manufacturing will be the third largest industry for AI spending with $2.0 billion going toward a range of use cases including automated preventative maintenance and quality management investigation and recommendation systems.


The fourth largest industry, healthcare providers, will allocate most of its $1.7 billion investment to diagnosis and treatment systems.


Marianne Daquila, research manager, Customer Insights & Analysis IDC, said “Enterprise digital transformation strategies are increasingly including multiple cognitive/artificial intelligence use cases,”


“Business transformation is occurring across all industries as successful companies embrace the array and potential impact of these solutions.


“Automated customer service agents, increased public safety, preventative maintenance, reduction of fraud, and improved healthcare diagnosis are just the tip of the iceberg driving spend today.


“With double-digit year-over-year spending growth forecast, IDC expects to see an increase in general use cases, as well as a refinement of industry-specific use cases.”


The cognitive/AI use cases that will see the largest spending totals in 2018 are: automated customer service agents ($2.4 billion) with significant investments from the retail and telecommunications industries; automated threat intelligence and prevention systems ($1.5 billion) with the banking, utilities, and telecommunications industries as the leading industries; and sales process recommendation and automation ($1.45 billion) spending led by the retail and media industries.


Three other use cases will be close behind in terms of global spending in 2018: automated preventive maintenance; diagnosis and treatment systems; and fraud analysis and investigation.


The use cases that will see the fastest spending growth over the 2016-2021 forecast period are: public safety and emergency response (75.4% CAGR), pharmaceutical research and discovery (70.5% CAGR), and expert shopping advisors and product recommendations (67.3% CAGR).


A little more than half of all cognitive/AI spending throughout the forecast will go toward cognitive software.


The largest software category is cognitive applications, which includes cognitively-enabled process and industry applications that automatically learn, discover, and make recommendations or predictions.


The other software category is cognitive platforms, which facilitate the development of intelligent, advisory, and cognitively enabled applications.


Industries will also invest in IT services to help with the development and implementation of their cognitive/AI systems and business services such as consulting and horizontal business process outsourcing related to these systems.


The smallest category of technology spending will be the hardware (servers and storage) needed to support the systems.


On a geographic basis, the United States will deliver more than three quarters of all spending on cognitive/AI systems in 2018, led by the retail and banking industries.


Western Europe will be the second largest region in 2018, led by retail, discrete manufacturing and banking.


The strongest spending growth over the five-year forecast will be in Japan (73.5% CAGR) and Asia/Pacific (excluding Japan and China) (72.9% CAGR). China will also experience strong spending growth throughout the forecast (68.2% CAGR).


“The latest iteration of the Cognitive/AI Spending Guide is a roadmap for the journey of organizational digital transformation through the use of AI, deep learning, and machine learning,”


“Organizations should be evaluating and starting to use AI throughout their systems and the Cognitive/AI Spending Guide is an indispensable resource in that effort,” added Schubmehl.


The Worldwide Semiannual Cognitive Artificial Intelligence Systems Spending Guide sizes spending for technologies that analyze, organize, access, and provide advisory services based on a range of unstructured information.


The spending guide quantifies the cognitive computing opportunity by providing data for more than 20 use cases across 16 industries in eight regions.


Data is also available for the related hardware, software, and services categories.


Unlike any other research in the industry, the detailed segmentation and timely, global data is designed to help suppliers targeting the market to identify market opportunities and execute an effective strategy.

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9Mobile: Smile Waits for Teleology to Fail Tests



Nigerian Communications Commission (NCC) has laid down rules of engagement that will ensure not only the transparent sale of 9Mobile but also the sustenance of its business post sale.


This suggests that the telecoms industry regulator, may not issue operational licence to the preferred bidder of 9mobile as announced by Barclays Africa, the financial adviser handling the sale of the telecoms company should the preferred bidder fall short of the technical know-how required to manage 9mobile.


Teleology Holdings, the preferred bidder selected for the acquisition of 9mobile, had up till March 21, to pay the non-refundable $50 million cash deposit.


But the rules of engagement by NCC suggest Teleology Holdings may be out of the race on technical grounds.

Smile Communications, the reserved bidder for 9mobile, is waiting in the wings to step in if Teleology fails.


NCC rules of engagement are contained in a letter, by its Governing Board signed by Senator Olabiyi Durojaiye, chairman, NCC to Mr. Godwin Emefiele, governor, Central Bank of Nigeria (CBN).


The NCC letter is partly in recognition of the fact that 9Mobile is indebted to a consortium of banks that are regulated by the CBN. Both NCC and CBN have been collaborating to ensure the successful sale of 9Mobile.


The letter espoused the three criteria that will guide the emergence of a preferred bidder for 9Mobile.


The first is “that whichever company would qualify as successful bidder to take over 9Mobile has the technical competence apart from financial capability to turn round 9mobile and not further compound its problems”.


The second criterion is “that the successful bidder should come in with substantial funds (FOREX) to sustain the industry not just recycling funds facilities already within the economy”.


While the third insists “that the company that will take over should have adequate technical infrastructure on ground”.

The last criterion stemmed from NCC’s disavowal of the likelihood of the CBN been swayed by the creditor banks that “only focuses essentially on repayment of outstanding loans”.


NCC’s concern for the sustenance of 9Mobile business post sale is hinged on the need for “the continuity of the company for the betterment of the telecom industry, subscribers, labour force and the interest of Nigeria as a whole”.


In advising CBN to take into consideration all the issued raised before recommending a preferred bidder to the Commission for the approval of a licence, NCC restated its earlier stand in the press release of February 22, 2018, that “the NCC Board will not allow what happened to Etisalat to repeat itself.

Therefore, the Board will scrutinize the technical capability and pedigree of whatever company/companies are recommended as preferred bidders as regards their records in the immediate past 3 – 5 years before any of them is considered qualified to be issued a licence”.


The Commission’s stance, the letter affirmed will safeguard 9Mobile from collapse and help it to raise enough funds to clear the debts inherited from Etisalat.


Its stance it surmised “is in the overall best interest of the communication Industry, the shareholders, the subscribers, the labour force and the entire country”.

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