Aon: China Must Boost Quality Control to Win Over Product Recall Insurers

Despite recent product recalls, brokers and insurers are rising to the challenge of insuring the Chinese manufacturing industry for recalls, according to a leading insurance broker and risk management consultant.

However, large insurance broker Aon is also warning that Chinese companies will need to boost their quality control in order to secure coverage.

Chinese manufacturers are beginning to realize that to trade on a worldwide basis many customers will make it a contractual requirement for their suppliers to buy product recall protection. But this cover will only be available if insurers have assesed the individual risk, according to Aon.

“Undoubtedly there is interest from the insurance market to offer product recall solutions to manufacturers in expanding economies and there are markets that see the development of recall insurance in China as an exciting opportunity, if handled correctly,” commented Mark Quinn, associate director at Aon.

The issue for insurers and brokers alike is developing recall insurance in a Chinese market that is relatively unsophisticated and only just coming to terms with the concept of product liability, let alone product recall — a niche area often written as a standalone product or as part of a wider liability package.

Quinn said the industry needs to promote product recall in China at grass roots levels, explaining the different recall policies available and the requirements of the insurance market in order to secure cover.

In particular, insurers will demand evidence of testing and controls throughout the supply chain. This appears to have been lacking in some cases and contributed to the high level of recalls emanating from the region. Bad track records will lead to high premiums or refusal to quote at all, according to Aon.

But effective quality control does not stop with the manufacturers. Quinn advises that companies across the supply chain should be conducting due diligence on suppliers’ quality control processes:

“Businesses trading with China need to consider the knock-on effect to their business. Recent EU legislation means that companies are obligated to inform authorities in the event of a recall and as such should also have robust checks in place to test products before being released to the public,” he added.

Source: Aon
www.aon.com