The product recall market saw a significant amount of renewals and new business coming into Lockton London for 1/1 and this has provided a good gauge on the state of this niche market which we would like to share with current and prospective clients.
Relative to other lines (US casualty and property), the recall market currently remains stable with rates trending up 5-10% on loss free renewals. The upwards pressure is driven by a general market trend as insurers and reinsurers push for higher prices. At the same time, sales patterns in the recall insurance market segment remain stable, meaning that in general rates will reflect any variations in sales in a like-for-like manner at renewals. There are, however, some interesting trend affecting specific industries such as food and auto manufacturing.
Risks in the food sector
Risks around raw and frozen produce/base ingredient foods are becoming challenging due to loss events and capacity constraints.
A series of E. coli bacteria outbreaks attributed to the consumption of lettuce has impacted the US market, triggering an extensive and complicated recall process. In a recent case from December 2019 the US Food & Drug Administration (FDA) traced back (opens a new window) an outbreak involving 138 cases of illnesses reported in 25 states.
The recall of lettuce can be particularly complicated because it is not only sold individually in bags but is also included in a range of products and meals where identifying the source can be tricky.
In November 2019, a US food manufacturer recalled approximately (opens a new window) 75,233 pounds (34,125 kg) of salad products that contain meat or poultry because the lettuce ingredient may be contaminated with E. coli.
Raw and frozen produce will continue to pose a systemic loss scenario to insurers where an entire sector (‘leafy greens’) can be subject to recalls.
Raw and frozen produce will continue to pose a systemic loss scenario to insurers where an entire sector (‘leafy greens’) can be subject to recalls as opposed to individual companies in that area.
Another major cause for recalls is improper labelling of potential allergens in manufactured food products.
Risks in the automobile sector
Meanwhile, auto components losses in Germany and Asia have had a significant impact on both QBE and Allianz who are consequently evaluating their portfolios especially around the larger Tier 1 key suppliers.
One of the drivers for more extensive recall processes is the comparatively low number of component producers supplying the global auto sector which increases the time and capabilities needed to track down all affected products. Another potential driver for recalls is the growing deployment of technology applications in automobiles in general and particularly in electric vehicles making software recalls likely to become more frequent in future.
General capacity trends
Another trend affecting the recall insurance market is a continuing move to syndication of larger risks requiring over $10m of capacity. While five years ago the market lead would take a $25m primary this has become highly unusual. Instead, two or three key leads are now sharing risks of this size. For buyers this can restrict competition and have a dampening effect on pricing.
We have seen countervailing pressure due to new market entrants attracted by recent profitability and growth in the number of new buyers.
However, we have seen countervailing pressure due to new market entrants attracted by recent profitability and growth in the number of new buyers. Insurers tend to perceive recall risks as an attractive addition to their portfolios because of its short tail characteristics. Insurers are facing pressure to clarify their longer tail exposures to reinsurers and financial markets and are therefore more interested in risks where the impact from claims have a reduced time horizon.
As a result, two new players have entered the London market, namely HDI and Perigon/Fidelis, quickly taking a prominent role in the market. In the US, Axon Underwriting is likely to enter the recall insurance market in the first quarter of 2020 with a team from Allianz US.
For further information, please contact:
Ian Harrison, Partner, Global Head of Recall Practice Group
Direct Tel: + 44 (0) 20 7933 2297 | E-mail: email@example.com (opens a new window)