CYBER RECALL : TECHNOLOGY, INNOVATION TO DRIVE RISKS, CLAIMS OF THE FUTURE

Admin l Thursday, December 07, 2017

SOUTH AFRICA – Advancements in technology are both a boon and a challenge for product recall. On the one hand, they offer an opportunity to improve the quality and traceability (see column) of products. On the other, they create new risks.

“What we see today in supply chain management would not have been thought possible even five years ago. The speed of development and the potential for improvements in product safety have been quite amazing,” says Christof Bentele, Head of Global Crisis Management at AGCS.

Manufacturing plants are now mostly automated. And while automation should increase efficiency and reduce human error, it also introduces the risk of a cyber-attack. Motivated by extortion or malicious intent, hackers could theoretically change or contaminate a product at the point of manufacture by controlling machinery or changing processes. For example, the US Department of Homeland Security (DHS) recently warned that syringe pumps used in hospitals around the world have flaws hackers could exploit to change the dosages being delivered to patients. [15]

Technology itself is likely to become a bigger driver of product recalls in the future, whether it’s recalls around cyber security or the introduction of innovative but untested advances, such as artificial intelligence, nanotechnology or biotechnology.

“Cyber is currently an underestimated risk for product recall,” says AGCS’ Bentele.“We have already seen incidents of recalls for cyber security vulnerabilities in products like cars and cameras. Concern about automation and machine learning is also likely to be accompanied by an increase in product risk.”

In 2015, Chrysler recalled 1.4 million vehicles to fix a software flaw revealed by security researchers while webcams [16] were recalled following a cyber-attack in 2016. In August 2017, the FDA [17] ordered a recall of almost 500,000 pacemakers in the US to patch cyber security vulnerabilities.

“There are huge pressures to get innovations and advances in material sciences, artificial intelligence and biotechnology to market. And while fast-evolving technology is good news for the efficiency of products, it also produces new recall risks,” says AGCS’ Bentele.

“Failures can happen when there is a shortage of time and not enough testing. This is also where human error creeps in. And that increases the risk of a recall.”

Recalls involving emerging technologies are also likely to be even larger and more complex than today. Widespread introduction of autonomous driving in future, for example, is likely to see a shift in liability from individuals to product manufacturers, a move that could potentially see an increase in recall risk. If a series of accidents raises safety concerns for the artificial intelligence technology behind driverless cars, it could trigger a massive recall.

New technology will raise interesting questions around liability and insurance.
“How will insurance policies interact, including product liability, recall and cyber? As yet there are no definite answers,” says AGCS’ Bentele. Already used to manufacture products ranging from aircraft parts to food, pharmaceuticals and human tissue, 3D printing is another area that could change recall exposures.

“Future product recalls will come from new areas,” says Stewart Eaton, Head of Product Recall, Regional Unit London, AGCS. “As insurers, we have to keep abreast of emerging technology issues, such as nanotechnology or 3D printing, to ensure we are able to respond and be proactive.”

[1] Toyota set to remain world’s largest automaker, Forbes, January 10, 2017
[2] The Multiplier Effect Strikes Again, Stericycle Expert Solutions
[3] Peanut Outlook – Impacts of the 2008-09 Foodborne Illness Outbreak Linked to Salmonella, US Department of Agriculture
[4] Takata Airbag Recall – Everything You Need to Know, Consumer Reports, July 14, 2017
[5] Takata puts worst-case airbag recall costs at $24bn, Bloomberg, March 30, 2016
[6]UK product recalls reach new high – up 48% in a year, RPC
[7]Centers for Disease Control and Prevention
[8]Stericycle Recall Index US Q1, 2015
[9] Mattel recalls nearly 100,000 toys after lead paint alert, The Guardian, August 3, 2007
[10] Contaminated eggs cost Dutch chicken farmers 33 million euros, Reuters, August 23, 2017
[11] Swiss Re Institute
[12] FDA Investigated Listeria Outbreak Linked To Frozen Vegetables, US Food & Drug Administration
[13] Social media amplifies damage of product recalls to firms – and their rivals, University of Washington Foster School of Business
[14] China Product Recalls: What’s at Stake and What’s Next, NERA Economic Consulting
[15] Consumer Product Safety Commission3 Toys and Clothing Top The List of Dangerous Products Detected in 2015, European CommissionSecurity warning over hospital syringe pumps, BBC, September 12, 2017
[16] Chinese firm recalls webcams, Daily Mail, October 24, 2016
[17] Firmware Update to Address Cybersecurity Vulnerabilities Identified in Implantable Cardiac Pacemakers, US Food & Drug Administration