Product failure is widely seen as a growing commercial exposure for manufacturers. We only need to look at Samsung Electronics’ recent exploding phone scandal to get a sense of the possible impact.
The South Korean company’s flagship Galaxy Note 7 smartphone was consigned to history just weeks after launch, while more than $19bn was wiped off the company’s market value. The possible reputational damage is still to be determined.
Such risks are pretty well known and most manufacturers appreciate the value of insuring at least some of them. The complexity and range of insurance policies on offer, however, has made this process harder than many companies would like.
Things are starting to change. Distinct forms of insurance are starting to converge – providing greater breadth and cost-competition for insurance buyers.
Traditionally manufacturers have been able to buy two different kinds of protection for product performance-related risks:
- Insurance that protects their own balance sheet; and
- Insurance that covers the legal costs resulting from a product failure affecting third parties.
To date, insurance protecting your own balance sheet has, in turn, fallen into two categories:
- product recall, and
- product guarantee coverage.
These two camps are beginning to blur, however, into one broad insurance product that responds to the risk most industry-supply companies want to protect against: the failure to meet the specification agreed with their brand-owning, public-facing customer.
The product guarantee market has traditionally been small and bolted on to general liability insurance policies. It has also been UK-centric and not covered the US – illogical considering the global nature of many brand-owning companies’ operations and customer base.
This is changing, however, owing to the greater onus on industry-supply companies to assume more product-related risk.
Product guarantee insurance is becoming more commonplace and readily available. Some product recall insurance policies are being amended so that companies further along the supply chain also have a measure of protection, should the end product prove faulty.
It is also becoming easier to buy product guarantee insurance to cover your international risks. The product recall market, meanwhile, has become more performance-oriented.
This marketplace is fast-changing, complex and, at times, convoluted. But with competition growing among insurers, and product-performance risks showing no sign of diminishing, there’s no better time to look at your insurance options and ensure you are fully protected.