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tough times for business

By unknown | Jan 21, 2009 | COMMENTS [ 0 ]

Things are about to get a lot tougher for product suppliers, retailers and producers in 2009 due to the expected promulgation this year of the Consumer Protection Bill.

Things are about to get a lot tougher for product suppliers, retailers and producers in 2009 due to the expected promulgation this year of the Consumer Protection Bill.

The passing of the bill into an act might spell a shutdown for companies that may have imported, produced and or distributed hazardous goods to consumers.

The bill also talks to South Africans who go abroad to stock unserviceable fong kongs to unsuspecting consumers.

The beauty of this bill is that consumers will not have to prove that the service provider was negligent.

The bill introduces strict product liability for suppliers. Suppliers are defined by the bill as any business that markets goods and services.

In the past product liability was limited to producers of goods but under the new definition producers, importers, distributors and retailers are included.

Suppliers, be they producer, distributor or retailer, can now be held liable for any damage caused by goods, regardless of a fault on the part of the supplier.

Contrary to the current law, no negligence needs to be proved. There need only be to be a causal link between harm, as defined by the bill, and the defective product.

Keith Marshall, regional manager: liabilities group at AIG South Africa, says the bill, when passed into law, will introduce the possibility of product recalls.

"One of the biggest threats to a company's bottom line is product recall. The costs of recalling a product can be astronomical and this, in addition to reputational damage, could force a business to close its doors," says Marshall.

In the United Kingdom, where similar regulations are in effect, overall product recall increased 125percent from 2004 to 2007, and in the case of non-food consumer goods, this figure was 894percent, he says.

"The cost of these recalls is huge," laments Marshall.

In 2006 a salmonella scare forced Cadbury Schweppes to recall more than one million of its chocolate bars, costing an estimated £45million (R665m).

"We have been watching developments on a global scale and South Africa is likely to follow a similar trajectory. Due to strict product liability, businesses need to understand the entire supply chain and be extra diligent regarding quality control, but they also need to ensure they are adequately covered,"says Marshall.

He says in response to strict liability provisions, insurance companies are developing solutions to protect businesses from the devastating effects of recalls. Marshall says the product recall policies generally cover the key expense areas and also provide the expertise of independent recall consultants to guide the company through the critical first few weeks of a product recall.

In light of this, AIG provides a unique global loss control service where in-house experts check the supply chain and perform quality control, ensuring businesses receive sound goods. This service aims to limit product recall and minimise claims.

"With goods originating from all over the world, including countries such as China where quality standards cannot be guaranteed, it is worth being properly covered," Marshall says.


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