Importers and manufacturers of Chinese goods must boost their commitment to quality control to secure product recall coverage, a major insurance broker warned.
Chicago-based Aon said 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 after comprehensive assessment of the individual risk by insurers, the company advised.
"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," said Mark Quinn, associate director at Aon in a statement.
The issue for insurers and brokers alike, Aon said, 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.
Recall coverage is a niche area often written as a standalone product or as part of a wider liability package, Aon noted. The Chinese manufacturing sector 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, Aon said.
Aon went on to advise that insurers will demand evidence of testing and controls throughout the supply chain. The lack of controls appears to have been lacking in some cases, the broker continued, and contributed to the high level of recalls emanating from the region. A bad track record will lead to high premiums or a refusal to quote at all, Aon said.
The question of quality control does not stop with the manufacturers, and companies need to conduct due diligence on suppliers' quality control processes.
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