Chinese manufacturers must boost quality control

Following recent product recalls, Aon is warning that companies need to boost their commitment to quality control to secure coverage.

Chinese manufacturers are beginning to realise that 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.

Mark Quinn, associate director at Aon, said on the reaction of the insurance market: "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."

Effective quality control does not stop with the manufacturers. Quinn advises 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."

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.

The industry needs to promote product recall in China at grass roots levels, says Aon, 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. Bad track records will lead to high premiums or refusal to quote at all.