Robert Balogh (pictured), executive vice president of Amwins Brokerage, doesn’t shy away from highlighting the troubling trends within the product recall insurance market.
“If you look at the recall market compared to other aspects of the market, we’ve seen organic growth in other areas as a result of rate changes,” he told IB. “Though with the number of recalls increasing, the rates have done the opposite and continued trending down the last two and a half, three years. Fortunately, we have seen the market start to correct and tick up from where they were, but it is still a competitive landscape.”
Elaborating on the increased market competition - with many new entrants entering the space the last few years - Balogh said that rates have been driven down, even as the severity and frequency of recalls escalates.
“As a broker, it’s obviously not great, but for the companies purchasing the coverage it is a breath of fresh air and often an opportunistic time. We are seeing more competitive terms than we’ve seen in a long time, especially when it comes to first time buyers. There’s got to be a market correction coming, it is inevitable because there’s been a number of big losses out there that are no secret and hard to ignore from a carrier and reinsurance aspect.”
And, when discussing the types of businesses most involved in the recall market, Balogh identifies those in the food industry, particularly manufacturers, as the predominant players in claims activity.
“Automotive component parts in other industries have started to uptick,” added Balogh. “We’ve seen more activity in the battery space as well.”
Balogh also touched on the complexities of dealing with large retailers, who play a significant role in driving recalls with their suppliers.
“Here in the states, we see some of these larger retailers are much more particular about things,” he said. “They see something they don’t like - how it looks or how it’s packaged – [and] they often reject it from the supplier. [It’s about] drawing the fine line. Is that necessarily a recall by definition from an insurance standpoint, or is it a recall because we don’t like the way it looks?”
From a regulatory perspective, Balogh highlighted the differences and similarities between regions, particularly the EU and the US.
“In the EU, it might be a different level of standards than here in the US or Canada,” he told IB.
What’s more, Balogh’s insights suggest that the regulatory landscape plays a crucial role in shaping the recall insurance market, influencing how companies manage and respond to them. Here, Balogh stressed the need for contractual changes within the industry to better manage recall risks.
“The biggest and best change we could see in the industry is a contractual change, not so much a regulatory change,” he argued. “And frankly, I think it’s the best thing for the industry from a recall perspective, to bring new buyers to the table. Because most companies don’t buy it unless there’s a reason, whether it’s contractually or they’ve had an experience or a close call that led them to buy it.”
However, Balogh believes the bigger issue is misunderstandings around recalls.
“Recalls aren’t necessarily the triggers of these events from an insurance aspect,” he said. “Recalls are reactions to an event, such as a contamination or defect, that ultimately lead to a company making a choice to voluntarily recall the product.”
Balogh believes that shifting the industry’s focus from recall insurance to product defect insurance will significantly enhance clarity and coverage, ensuring that companies are better prepared to handle the underlying causes of recalls. Going further, Balogh draws parallels to the cyber insurance market’s evolution, suggesting that product recall insurance might follow a similar trajectory.
“Recall could be the next cyber,” he said. “I think as an industry, we will continue to have situations both with regards to frequency and severity and that will ultimately be what leads us to being that next big product where no company could operate without it due to the repercussions it could have financially on one’s balance sheet.”
