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Article | Hot topics in product recall

The modern consultant: artificial intelligence's thoughts on the impact of labor shortages on the recall insurance market

There is a high level of expertise in the current recall market, be it brokers, underwriters, crisis management consultants or damages experts. If you are familiar with the product recall industry, you’ll know that these professionals are a critical component to the preparation for and execution of a product recall. Their skills, experiences, and understanding in the nuances of handling a recall that make them stand out for business owners and stakeholders concerned by risk.

However, with all the discussion of artificial intelligence (AI), myself and colleagues often find ourselves asking the questions of whether our expertise has the same relevance as it once did.

As a millennial, early in the early stages of my career, all this discussion of AI made me wonder whether my skill set and expertise will have a similar value 10 years from now. With that said, I thought it would be interesting to perform a quick experiment on AI’s knowledge on the impact of labor shortages on recall risk.

Labor shortages are a hot topic in the recall insurance market, with many key decision-makers asking what impact these shortages may have on the increased risk of recall occurrences, as well as potential increased loss exposure. What did AI make of all this?

While scrolling through various social media feeds over the last few months, I discovered a website called OpenAI and their “ChatGPT” system. From my limited technical understanding, this is an artificial intelligence-backed search engine that is trained to follow an instruction in a prompt and provide a detailed response. I have seen a variety of stories highlighting this technology, including college students using it to write papers and social media users using AI to make Drake rap about beans. (If you have not seen this video, I would highly recommend searching for it!).

So, I went to the ChatGPT website and entered the following prompt: “write an article on the impact of labor shortages on product recall insurance.” To my amazement, the article below was produced in seconds:

Labor shortages can have a significant impact on product recall insurance, as they can increase the likelihood and cost of recalls.

When a company experiences labor shortages, it may struggle to keep up with production demand and may cut corners in order to meet deadlines. This can lead to quality control issues and an increased risk of product defects, which can trigger a recall.

The cost of a product recall can be significant, as it includes not only the cost of recalling and replacing the faulty product, but also the cost of any legal and regulatory fines, as well as damages to the company’s reputation. Product recall insurance helps cover these costs and can provide a financial protection for a company in the event of a recall.

However, labor shortages can also impact the ability of a company to effectively manage and execute a recall. Recall efforts require a significant amount of labor and resources, including coordination with suppliers and distributors, communication with customers and regulatory agencies, and the physical recall and replacement of the faulty product. If a company is already struggling with labor shortages, it may not have the capacity to adequately handle a recall.

In addition, labor shortages can also affect the supply chain and logistics of a recall. If a company is unable to secure enough workers to fulfill orders or ship products, it may be unable to recall and replace faulty products in a timely manner, leading to further delays and potentially increasing the cost of the recall.

Overall, labor shortages can pose significant risks to companies and can have a significant impact on product recall insurance. It is important for companies to address labor shortages and maintain strong quality control measures in order to minimize the risk of recalls and protect themselves with adequate product recall insurance coverage.

After reading over the article, I was stunned at how the article written by AI had hit on so many of the internal and external factors that I had already come across in my experience in recall claims review and analysis. I couldn’t disagree with any of the findings.

Internal factors such as limited oversight on the production line or limited staffing (causing manufacturers to take shortcuts to meet production demands) are key issues in the increased likelihood of potential product defects/contaminations, leading to recalls.

Additionally, the limited staffing availability at an internal level leads to potentially longer recovery periods as the time to clean and sanitize the facility following a contamination may take longer, the time to get operations back up and running increases, and the overall production output may be lower – all leading to potential longer time periods for insureds to reproduce lost inventory and extended lead times on fulfilling outstanding purchase orders.

Like the internal factors above, externally an insured’s suppliers are facing similar labor issues. From an external perspective, due to labor shortages, suppliers/co-manufacturers may be unable to provide materials or products in a timely manner. These delays lead to issues such as insureds needing to source from potentially “lesser” suppliers to keep up with production demands, increasing the potential of poor-quality products being received and increasing recall risk. Additionally, insureds sometimes need to seek other suppliers/co-manufacturers, as their current suppliers do not have the production capacity due to labor shortages to make up for product lost due to the recall. Finding a new supplier can be a timely endeavor, which delays the potential recovery period even further.

The compounding impact of these internal and external labor factors leads to a potential increase in recalls due to quality control inefficiencies, as well as increased recovery and mitigation periods.

Artificial intelligence and I are certainly in alignment with identifying the potential impact that labor shortages are having on supply chain and manufacturing, and ChatGPT was able to author its article in a fraction of the time I was. Pretty efficient, but it has its limitations.

At the same time, I can ask for a blueprint for a three-bedroom home, or explain how to design a parabolic ski, or how to make a souffle – but could I execute on those issues once I received the response? Probably not, that would take a certain level of expertise and experience. That is what the experts referenced above will always bring to the market.

The exercise was useful. Does artificial intelligence have the capabilities to apply this knowledge to real-life recall scenarios. For example, is it able to apply this information following a loss, study and interpret the context in which the loss has occurred and assist in the process of identifying what financial losses occurred solely and directly due to the recall event, in contrast with pre-existing external market forces, such as labor shortages.

I like AI. I’m a fan. While AI can talk in general terms about the impact labor shortages are having on businesses and potential guidance on how to address these issues, my current view is that the experience and expertise in the insurance market is vast and remains a critical component of risk management in the product recall industry. At Baker Tilly, our team is always available to respond to your “prompt”. Our response will not only be limited to our guidance, but will far exceed that with hands-on practical expertise. Go there. Start here.

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