What impact will new ‘right to repair’ rules have on product recall cover?
Manufacturers will be legally obliged to make spare parts available for certain products under right to repair rules. But the new law leaves a lot of unanswered questions around product recall insurance, according to John Naughton.
Consumer products like fridges, washing machines and dishwashers will soon be easier to repair and will last longer as a result of legislation announced by the UK government in March. The “right to repair” requirements placed on manufacturers of domestic energy related products are part of an update to wide-ranging Ecodesign and Energy Regulations.
From this Summer, manufacturers will be legally obliged to improve repairability and make spare parts for products available to consumers so that electrical appliances can be “easily” fixed, the Government’s Department for Business, Energy and Industrial Strategy (BEIS) says.
The idea is to extend the lifespan of products by up to ten years – “preventing appliances ending up on the scrap heap sooner than they should and reducing carbon emissions at the same time”.
The idea is to extend the lifespan of products by up to ten years – “preventing appliances ending up on the scrap heap sooner than they should and reducing carbon emissions at the same time”.
There’s no doubt this is a great idea from an environmental perspective, but in the context of product recall insurance, there are still a few question marks when it comes to the practical considerations of these new regulations.
On the one hand, new rules may mean that faulty components can be taken out of the relevant products and replaced more easily. That should make the end product cheaper and quicker to repair following an issue with a faulty component - which is a positive from a product recall cost point of view too.
However on the other hand, any change in regulation and easier access to the internal workings of consumer products could increase the severity and frequency of recalls. For example, easier access to power and battery packs could increase concerns over consumer safety, repairs could be carried out incorrectly - damaging the product further, or the wrong component could be used as part of the repairs. All of these could increase the risk of the final product being recalled.
Known unknowns
BEIS aims to lay regulations before Parliament this Spring to bring the new requirements into force in the UK in the Summer. The draft regulations will reflect what was agreed by the UK as a member state at EU level in December 2018 and January 2019.
The timing is critical for manufacturers as they will have to incorporate “repairability” into their designs and manufacturing processes. It’s possible that their current product lines may be restricted from being sold in the UK or be subject to an automatic recall, if manufacturers don’t make the changes in time, and their products are not repairable.
It’s not yet clear who will be responsible when a recall happens in such a situation: will it be the final manufacturer or the component maker who in law is responsible for making sure that components are interchangeable and available for ten years?
Companies will likely need sufficient time to make their products compliant. If regulators take a hard-line stance straight away, they may order a recall of products that are not deemed to be sufficiently repairable. If the recall is because the manufacturer’s product has components that can’t be replaced easily enough then the product recall insurance might not respond.
It’s not yet clear who will be responsible when a recall happens in such a situation: will it be the final manufacturer or the component maker who in law is responsible for making sure that components are interchangeable and available for ten years?
Manual labour
Under the new regulations, new devices will have to come with repair manuals, potentially adding another layer of risk for insurers and their clients. If the repair manual is incorrect or unclear, it could lead to a malfunctioning product or, worse still, a safety concern. In this case, the manual itself could be subject to a recall as it forms part of the product.
On top of that, even if the manual is correct but the repair is carried out poorly, leading to a more serious fault, the final responsibility for recalling or fixing this is now unclear. There could be instances when the product may have to be repaired twice; once to repair the original fault and a second time to repair the damage caused by the incorrect first repair. Is it the customer at fault - or is it the manual’s author, the product retailer, the final product manufacturer or component manufacturer? The introduction of a repair manual and spare parts certainly creates a new set of recall and liability-driven risks.
The new regulations might not take account of possible knock-on effects brought about by the changes. For example, a move to encourage repair and replace will open up an entirely new market for after-market component sales direct to consumers; under the new EU rules, it appears that manufacturers will have to make parts available for up to a decade.
Increased demand for individual components could create confusion for consumers and an opportunity for “fake” parts to be sold in their place.
Increased demand for individual components could create confusion for consumers and an opportunity for “fake” parts to be sold in their place. But what happens and who is responsible when a fake part becomes part of the final product and then a fire, for example, results when that part fails?
Uncertainty = higher premiums
Insurers always want to have clarity around the risks they are covering. Any kind of uncertainty that potentially increases the severity and frequency of claims will naturally make insurers less willing to provide cover - or the uncertainty will be reflected in restricted terms and higher rates. A lot of manufacturers of components – and even final products - might find it difficult to find adequate recall cover.
The insurance industry wasn’t part of the consultation process for the new legislation. Now, with the clock ticking on implementation, risk professionals everywhere should be looking into how product recall exposures and protections could be affected by change on this scale.
