Sessions: INT 201: Product Liability and Product Recall – The China Syndrome

The vast promise of China isn’t without risk. Readers will recall the following misfortunes to have befallen several manufacturers:

Item: Pottery Barn: 185,000 units, candles, exterior coating can ignite.
Item: Cranium Inc.; 38,000 unites; Game Die, paint on die contains excessive lead.
Item: Dollar Tree Stores; 253,000 units; glue guns, possible short circuit causing smoke and possible fire.
Item: Mattel; 18 million units; toys, possible lead contamination
Item: Wenzel Corp.; 3,900 units, airbed inflators; can overheat when engine is running.
Item: Husky; 233,000 units, air compressor, cover not made of flame retardant material.
Item: The Gift Wrap; 600 units; picture frames, surface paint excessive lead.

The incidents, compiled by Kevin J. Murphy, senior vice president of Hilb Rogal & Hobbs, have cost companies millions. Worse yet, the physical recall of products is the least of a risk manager’s problems.

“The manufacturer in China rarely has product liability coverage that responds in the United States,” said Murphy.

What to do?

“In many cases, I would advise clients to buy foreign manufacturers coverage,” he said. “There are programs in today’s market from big-name insurers that you can put together for makers of products. It’s a master policy and you can charge back the cost of the policy back to the manufacturer.”

China’s role in supplying the United States with consumer products is growing. China’s exports to the United States grew 12.6 percent in 2007 over the previous year, said Murphy.
By comparison, exports from Canada, long the U.S.’s most important trading partner, grew just 3.1 percent over the same period.

Murphy also said that incidents of tainted food products have also received attention from the press, and he noted that there are about 450,000 food processing companies in China with fewer than 10 employees sending food to the United States.

The Chinese government’s recent execution of the nation’s top food regulator, said Murphy, was meant to send a signal to the rest of the world that China was serious about cracking down on corrupt and incompetent bureaucrats. But other nations have managed to export tainted food products.

“If you’re not protecting the raw ingredients, you have to take control,” said Murphy. “You really need to employ as many risk management techniques as you can.” Even when a company’s done its due diligence, “you still have to go down a few layers,” he said.

He advised risk managers to have top flight controls in place and a good claims handling operation because when a product recall strikes, “it’s your face, your reputation and your assets that are at risk.”

The risk management piece of it is completely within your control, at least in how your program is set up.