A complex legal landscape
With European product recalls rising year on year, understanding the core concepts of EU and UK Product Safety Regulations is crucial to bringing a safe product to the European market.
European Union
Non- Food Products
On the 13 December 2024, a new General Product Safety Regulation 2023/988/EC (GPSR) will come into force. It will apply to all products (new, used or repaired) that are outside of the scope of other more specific regulations.
GPSR will replace the existing rules under the General Product Safety Directive 2001/95/EC and the Food Imitating Product Directive 1987. It is designed to provide a comprehensive safety net for products or risks not regulated in other EU legislation, and bring regulations up to date with the substantial growth in digital commerce.
Exceptions include foods, pharmaceuticals, medical devices, living plants, animals and animal by-products, products for plant protection, and products marked for repair or reconditioning.
What’s new under GPSR?
- A precautionary principle shall be widely applied by all stakeholders.
- The definition of manufacturer now includes Economic Operators to ensure that all parties who bring products to market in the EU are responsible for ensuring product safety.
- New duties in respect of cyber security and psychological injury.
- Reinforced product traceability that is visible and accessible for consumers (for example, through a batch or serial number).
- A list of aspects to be considered when assessing the safety of products, including new technologies.
- Specific rules in the text of the regulation to cover reporting unsafe products and managing product safety recalls, including a mandatory recall notice template, and a right to remedy for consumers.
Food Products
European Union (EU) food safety policy is largely governed by Articles 168 (public health) and 169 (consumer protection) of the Treaty on the Functioning of the European Union. Covering the entire food supply network, it addresses safety aspects in primary production, hygiene conditions in food processing, packaging, labelling and official controls on food
safety compliance.
Imports from outside the EU must meet the same standards as food produced within the EU.
Whilst GPSR 2023 excludes food, this is only to the extent that other regulations do not apply. For example, defective food packaging will fall within the remit of the Food Contact Regulations to the extent that, by virtue of coming into contact with food, it renders the product unsafe. However, a physical defect (such as a sharp edge) would bring it within the remit of GPSR 2023.
UK Post Brexit
The General Product Safety Regulations 2005, which enacted the previous EU directive (2001/95/EC), are less complex and remain in place in the UK. However, businesses selling into the EU and Northern Ireland must comply with the GPSR and must have a named point of contact on product safety (known as the ‘EU Responsible Person’).
Large losses and UK Companies trading in the EU
For businesses operating in the UK, Northern Ireland and EU countries, navigating the increased cross-border regulatory framework requires insurers to adapt policies to cover multi-jurisdictional risks. Companies will need to ensure they have adequate coverage for product-related losses across different markets.
As the GPSR mandates improved safety standards, quicker recalls, and more robust consumer protection mechanisms, businesses that fail to comply with these requirements could face larger financial losses, particularly related to:
1. Product recalls
The regulation broadens the scope of what is considered a “consumer product” and now includes services related to products and digital content or connected products, such as smart devices. This extension means that businesses in a wider array of sectors could face risks of large losses if their products fail to meet safety standards, particularly in emerging industries involving high-tech products or devices, such that there is a wider risk of recall. Insurance policies will need to evolve to account for new product categories and related safety issues that were previously outside the scope of traditional product safety regulations.
If a product is now found to be unsafe, companies will be required to act quickly to recall the product, which can be very costly, especially if the recall involves a significant number of units. The cost of recall management, logistics and consumer compensation may contribute to increased value in losses stemming from such recalls.
2. Product Liability, consumer compensation and litigation
The GPSR is designed to ensure that consumers have more robust rights when it comes to compensation for damages resulting from unsafe products. The regulation mandates that businesses provide clear and easy-to-access channels for consumers to report unsafe products and that consumers are fully informed of their rights. This increase in consumer-driven actions could lead to a rise in legal claims and reputational damage for businesses, impacting their financial stability and profitability in the event of large product safety failures.
3. Cross-border claims
With the GPSR’s focus on cross-border cooperation among EU member states, large insurance losses might arise if a product safety issue spans several jurisdictions. This could lead to a rise in multi-jurisdictional claims, involving legal fees, regulatory fines, and compensation across different national legal systems.
Given these factors, an increasing trend is predicted for both value and frequency of losses, particularly in sectors like electronics and automotive industries where product recalls and safety issues are more common. When claims occur, attention needs to be given to currencies. Policies may be underwritten in one currency (i.e. GBP), but claims payable in another with difficulties arising if relevant wording related to Exchange Rates is not included within the policy.
The Importance of Crisis Management Planning and Insurance
As well as a predicted upward trend in the value and frequency of product recalls, there has been heightened media attention in recent years, with no sign of this abating. Large manufacturers are often the ones making news headlines, yet SME’s also face recalls daily. Furthermore, whilst not every situation is major, responsible businesses must ensure that every product crisis that impacts public safety is taken seriously.
When a product recall crisis happens, it is essential that companies have:
1. A Risk Strategy
Robust and factoring in sector and market specific regulation and practice.
2. A Crisis Management Plan
Tested regularly to ensure the business is thoroughly prepared for any scenario and is able to respond quickly and appropriately in a dynamic situation. It should include:
- Assigning specific roles
- Centralizing contact information
- Providing pre-written templates for communications
3. The right insurance protection
Product Recall insurance is not a one-size-fits-all solution for all manufacturing hazards. Furthermore, some manufacturing companies mistakenly believe that their insurance needs are sufficiently covered under a general liability policy.
