Businesses urged to cover risks presented by consumer protection act

The implementation of the Consumer Protection Act (CPA) which is expected to come in to force in April 2011 will see a major shift in accountability between retailers, wholesalers and manufacturers of goods and services.

The CPA will ensure that anyone across the supply chain, whether as a manufacturer or distributor, can be held strictly liable for any injury or damage arising from the sale of a defective or faulty product. This means that distributors who have typically avoided this liability because they are not involved in the actual manufacturing process of the product, may face severe financial risk should they not take steps to protect themselves.

“It is vital that retailers and wholesalers alike impose additional obligations on their suppliers in light of their mounting accountabilities in terms of the CPA, says Michele Ravenscroft Head of Financial Institutions and Professional Practices at Aon South Africa. “For example, if a supplier to a retailer has a return policy that is in contravention of the Act, the supplier may be called on to amend its policies so that the retailer is able to comply with the goods return requirements of the CPA.”

She adds that all businesses that form part of a supply and/or goods and services channel need to re-visit their current risk cover.

“Obtaining sound financial advice from a trusted financial adviser is the best place to start. Aon South Africa, in anticipation of the needs arising out of the dawning CPA, has developed specific solutions to cater for all short-term insurance related implications of the Act.

“In addition to providing a platform of risk cover options, Aon South Africa is also able to extend existing risk cover to include product liability cover for manufacturers, distributors and retailers that can be tailor made to suit the type of product that is being insured. For example, cover is now available solely for the consequences of incorrect labelling on products or defective workmanship.”

She says it is also important for organisations to obtain insurance products that will provide cover for litigation costs incurred by increased third party claims.

According to Michele, claims arising from products and services will most definitely increase due to the new legislation and those who have not fully prepared for it will start to feel the pinch as the Act is enforced. However, she says it is not necessarily all bad news for those across the supply chain.

“Most organisations that already comply with existing legislation (acts, common law, industry rules etc.) governing consumer protection will agree that treating customers fairly and delivering on what is promised makes good business sense. It can be concluded that although suppliers of goods and services will need to familiarise themselves with the Act they should appreciate that legislation of this nature should not be a substitute for good customer relations, proper communication, sound business practices and risk management.”