XL answers product recall risk for automotive suppliers

The automotive supplier industry plays a pivotal role in Germany’s economy. In the first six months of 2013, 900 mid-sized suppliers generated sales of more than €40bn, which accounts for almost 19% of the industry’s entire turnover for the period.

Industry manufacturers frequently use the same component for numerous platforms, which helps increase efficiency and reduce costs, but also presents risks. In the event that a single component or group of components is defective, a compulsory product recall could result in serious economic consequences for the manufacturer.

Recalls can be problematic for suppliers but also for insurers, according to XL international casualty senior underwriter Bernd Oppermann, who said that client’s demand for new and innovative insurance solutions was behind the launch of XL’s Automotive Recall Plus solution.

Speaking to StrategicRISK, Oppermann said: “The difficulty in the past for suppliers and buyers was that no insurance cover was available for either the production costs for faulty products or the automotive manufacturer’s internal costs in the event a product had to be recalled.

“The newly created coverage includes the automotive supplier’s production costs, a percentage of the manufacturer’s production costs and costs incurred by the manufacturer’s customers in connection with the recall programme, which the manufacturer is legally obliged to cover, such as replacement vehicle, accommodation costs for the driver and passengers.”

Oppermann said the pressure on suppliers to engineer and produce components for a global clientele brings greater complexities, such as warranty obligations, which until now, could not be easily insured.

“The automotive industry relies primarily on system suppliers that, in turn, sell their components worldwide. That is why it is so important for these system suppliers, which must provide a warranty to the automotive manufacturers, to be able to buy insurance that covers this contractual obligation.

“Our policy now enables risks to be covered that arise from legally required warranty agreements between the supplier and the automobile manufacturer. It offers coverage for the supplier’s manufacturing costs, lump sum costs of the automobile manufacturer, lump sum costs per defective vehicle, car rental costs and accommodation costs in the event of a recall.”

Oppermann said the product is also available in Austria and Switzerland, where there is a heavy reliance on the automotive supplier industry.

He said: “The automotive supplier industry is a pillar of the German economy. However, it also plays a pivotal role in Austria’s and Switzerland’s economy. We realise that in these three German-speaking countries there exists a genuine client need for automotive recall plus.

“Having acquired some extensive market experience in these countries, we can envisage rolling out the product in other regions with a significant automotive supplier industry.”