Product safety issues 'can seriously damage your business'

International law firm Freshfields Bruckhaus Deringer said recent tougher regulation and more stringent enforcement of product safety laws had led to an increase in product recalls and other corrective action by businesses.

The European Commission received 56% more consumer safety alerts in the first ten months of 2007 from EU member states, compared to the same period in 2006.

Under the General Product Safety Regulations, which came into effect towards the end of 2005, producers and distributors of consumer items that find they have placed an "unsafe" product on the market are required to notify the appropriate authorities. A breach of the regulations can result in a fine of up to £20,000 or a custodial sentence of up to twelve months.

A Mori poll, commissioned by Freshfields Bruckhaus Deringer, revealed that firms had accepted the tougher regime, with 75% of companies believing that the current level of product safety regulation was "about right".

At the same time, businesses appreciated the harm and disruption that could be caused by a product crisis, with 45% of companies that had managed a product safety issue in recent years reporting damage to reputation and/or customer loyalty, and a third reporting adverse financial effects.

'Getting it right'

Getting product recall right wasn't easy either, according to the report. Over a third (35%) of companies admitted they would have difficulty tracing products they had sold to other businesses.

Also, half were not confident that even the direct costs of a product recall would be covered by their insurance, while 40% of businesses had not yet established good working relationships with regulators.

Freshfields' senior associate in product risk and liability, Andrew Austin, said the report showed that in general businesses were better prepared than ever before to identify and respond to product safety issues.

"Over three-quarters of companies are confident that they are well prepared to deal with a major product recall situation in the future," he said.

"However, a minority still need to make improvements in some areas, such as improving incident management planning, building strong relationships with regulators and checking that the costs of conducting a product recall would be covered by insurance."

The report - 'Getting it right' - provides suggestions for industry on handling product safety issues. It can be obtained here.

Note - Products liability insurance is designed to cover legal liability for any damage or injury that a product supplied may cause. However, this cover does not normally extend to include costs associated with product recall. This separate cover can be obtained from specialist insurers - check with your insurance broker/provider.