Liability claims are likely to escalate says leading insurer
Smaller companies may be caught unaware by the weight of the Consumer Protection Act (CPA) as many have not taken this important piece of legislation seriously enough and ensured that their processes are aligned with the requirements of the Act.
“The full impact of the CPA is still to be felt by the insurance industry as South African consumers get used to the protection they receive under the Act,” says Shehnaz Somers, head of commercial underwriting at Santam, South Africa’s largest short-term insurer. “We have found that large companies, particularly those with their own legal departments or legal advisors, started to gain an understanding of the impact of the Act on their business very early on. However this hasn’t necessarily been the case in smaller operations.”
Somers believes the number of liability claims is likely to escalate as consumers start to understand their rights and their access to the various consumer commissions improve.
Ahead of this event all businesses owners are encouraged to protect themselves from an insurance perspective to mitigate potential risks.
The face of the supply chain has changed. Defective products have historically only been the responsibility of the manufacturer, however, since 01 April 2011, the retailer and everyone else in the supply chain can be held liable for failed goods. Thus, all businesses should be covered for products liability even if they are not involved in the actual manufacturing of the product they are selling.
“Now that merchants are also to be held liable for faulty goods, there can be grim financial repercussions for those who are not adequately covered by products liability insurance,” cautions Somers.
Intermediaries should ensure that their clients are insured for the highest limits of indemnity they can afford as the size of liability losses is very unpredictable.
Businesses must also be prepared to recall any goods that are unsafe or pose a potential risk to the public in the event they may be asked to by the National Consumer Commission. Insurance for product recall is available from specialist liability insurers, but will usually only be granted to clients who have a comprehensive recall programme in place to ensure that the recall can take place as efficiently and cost effectively as possible.
The Act deals in great detail with unfair, unreasonable and unjust terms used in contracts and agreements, as well as the need to ensure such contracts are issued in plain and understandable language. Suppliers will not be able to ‘hide behind the small print’ and where contractual terms have previously enabled them, and their insurers, to deny liability claims, this may no longer be the case.
The Future of Business
Ultimately, the increasing amounts paid by insurers to third parties injured by the products and processes of businesses, will translate into increased premiums to sustain this very important source of insurance. In turn, such businesses will apply these costs to the goods they are supplying which mean ultimately the consumer bears the brunt of these costs by having to pay more for the product.
“As our judiciary and legislation is becoming ever more consumer driven, any ambiguities or unfair terms used by businesses in the sale or distribution of their products will no doubt be ruled in favour of the consumer. All documentation should be drawn up with a view to fairness to and understanding of the consumer,” says Somers.
It is up to businesses and insurers alike to ensure that the correct risk management and quality control measures are applied in order to reduce the risk to consumers and ensure that only high quality and safe products are released to the South African market. Businesses who do not demonstrate this obligation in the processes employed in the manufacture or supply of their products, may find themselves unable to obtain public liability insurance at all, or at exorbitant prices.
“We all have a role to play to ensure that our consumers are treated with the respect and care they deserve,” concludes Somers.
I am surprised at the number of companies for which I am asked to quote, who still have Liability covers of only R2,5-million or less, or who are still covered on the old "fault" based Liability wording, which will not respond to Consumer Protection Act awards.
As previously mentioned, I can offer Liability cover of R30,000,000 on the wider "Broad Form" wording at much the same premium levels as you are currently paying!