Recall cost insu­rance for (auto­mo­ti­ve) suppliers

High recall rates under dif­fi­cult mar­ket conditions 

The cur­rent (world) mar­ket situa­ti­on poses many chal­lenges for the auto­mo­ti­ve indus­try, espe­ci­al­ly for sup­pli­er com­pa­nies. Sup­p­ly chains are stres­sed by pan­de­mic mea­su­res, raw material/material/energy shorta­ges and asso­cia­ted infla­ti­on. In addi­ti­on, the num­ber of recalls in Ger­ma­ny has risen in recent years and the num­ber of new­ly regis­tered vehic­les has fal­len in par­al­lel. The­se deve­lo­p­ments are lea­ding to incre­asing recall rates. For sup­pli­ers, this situa­ti­on is pro­ble­ma­tic (also) from an insu­rance per­spec­ti­ve and is threa­tening to get even worse.

Recall cost insu­rance as part of com­pre­hen­si­ve risk protection

A recall cam­paign can quick­ly cost mil­li­ons. As a rule, howe­ver, neither “gene­ral pro­duct lia­bi­li­ty insu­rance” nor “gene­ral busi­ness and pro­fes­sio­nal lia­bi­li­ty insu­rance” covers the dama­ge cau­sed by a recall. This results if only from the respec­ti­ve under­ly­ing (gene­ral) terms and con­di­ti­ons of insu­rance, unless the indi­vi­du­al agree­ments with the insurer sti­pu­la­te other­wi­se. The inte­rest in cove­ring recall risks is the­r­e­fo­re ser­ved by so-called “recall cost insu­rance”, for which the Ger­man Insu­rance Asso­cia­ti­on (GDV) pro­vi­des (non-binding) spe­ci­men terms and con­di­ti­ons (“Gene­ral Insu­rance Con­di­ti­ons for Busi­ness and Pro­fes­sio­nal Lia­bi­li­ty Insu­rance (AVB BHV) A5 Recall cost risk for motor vehic­le parts sup­pli­ers”).

Chal­lenges for suppliers

Par­ti­cu­lar chal­lenges for sup­pli­ers ari­se from the fact that they are often in a dou­bly wea­k­en­ed posi­ti­on: On the one hand, OEMs pass on the cos­ts asso­cia­ted with a recall to sup­pli­ers through con­trac­tu­al exten­si­ons of lia­bi­li­ty. Such exten­si­ons of lia­bi­li­ty are often accept­ed by sup­pli­ers, even if they go bey­ond the scope of sta­tu­to­ry lia­bi­li­ty. On the other hand, the recall cos­ts insu­rance excludes pre­cis­e­ly tho­se claims that exceed the scope of sta­tu­to­ry lia­bi­li­ty based on a con­trac­tu­al agree­ment (cf. Sec­tion A5‑3.3 AVB BHV). The spe­ci­fic impact of such indi­vi­du­al agree­ments bet­ween sup­pli­ers and OEMs on insu­rance covera­ge (in par­ti­cu­lar on any risk exclu­si­ons) is sub­ject to a case-by-case review.

Increased recall rates and the dif­fi­cult mar­ket situa­ti­on fur­ther exa­cer­ba­te this dilem­ma. Tog­e­ther with high and hard-to-calculate loss volu­mes for recall cost insu­rance pro­tec­tion, this means that insu­r­ers some­ti­mes only offer insu­rance cover at all under nar­row con­di­ti­ons. Such con­di­ti­ons include increased pre­mi­ums, high sup­pli­er deduc­ti­bles and exten­ded risk exclu­si­ons. The trend is that the fur­ther up the sup­p­ly chain they are or the clo­ser they are to the OEM (espe­ci­al­ly for tier 1 sup­pli­ers), the more dif­fi­cult and ris­ky it beco­mes for suppliers.


It is beco­ming incre­asing­ly dif­fi­cult for sup­pli­ers to obtain cost-effective insu­rance cover on good terms. The afo­re­men­tio­ned lia­bi­li­ty and cost risks can only be coun­te­red through cau­tious, forward-looking con­tract design vis-à-vis the OEM and/or the use of optio­nal insu­rance exten­si­ons. The lat­ter, howe­ver, is asso­cia­ted with increased costs.


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