In this article, we’re going to look at product recall insurance for health supplements, vitamins, and other nutraceutical products. To begin, it’s important to understand the difference between product recall insurance and product liability insurance since they are two different things but are both critically important for manufacturers and distributors of supplements and other nutraceutical products.
Okay, so what is health supplement recall insurance?
Product recall insurance is a specialized coverage form that protects a business from the costs of recalling a potentially hazardous or dangerous product from the marketplace. It covers the costs such as notifying customers, placing ads on TV, newspapers, and online telling consumers of the potential danger and how to return the product.
From there the costs of shipping defective health supplement products to a facility to have them destroyed and disposed of, plus the overtime costs of employees involved in this work. That’s what most basic recall policies cover.
But policies can be broadened to include crisis management, PR, lost profits, refunds, or replacement offers, brand rehab expenses and more.
How does product recall differ from product liability insurance?
Product liability insurance which is part of a health supplement manufacturer’s or distributor’s general liability policy responds to claims of bodily injury or property damage. Typically if a customer ingests your product and becomes ill or worse dies, they or their heirs will file a lawsuit against your company for damages and product liability insurance will pay the defense costs and ultimately the settlement.
But, it will not pay to remove that product from the marketplace if it’s found to be dangerous. Now, you may be thinking “that’s stupid – why wouldn’t the insurance company pay for a recall rather than facing more big claims?” It’s a good question and the answer is because the product liability is built just to respond to claims for bodily injury or property damage and it’s not designed or priced to pay for a recall.
On top of that your general liability policy has an aggregate limit of liability built into it which caps the maximum your insurer will pay in any one policy year – usually $2M, so if you don’t recall a dangerous product you may be on the hook for claims in excess of that aggregate.
What does a health supplement recall cost?
That’s going to depend on the type of product, and the breadth of it’s distribution, but recall costs can be extreme. There’s no specific data on nutraceutical and health supplement companies but in the food business the average cost of a food recall is about $10 million.
Supplement, vitamin and nutraceutical companies tend to be smaller with a smaller distribution footprint so it’s likely no where nearly as large as $10 million, but even if it’s 10 to 20 percent or $1 to $2 million dollars, is that an expense you can afford out of pocket?
What triggers a recall policy?
The trigger or what kicks a recall policy into action is typically the discovery that your product is “adulterated” and consumption of it would result in bodily injury. Adulterated means the accidental or unintended contamination of the product, mislabeling, or the malicious tampering with your product.
Most policies do not need a government regulatory agency to mandate a recall, but if that does happen, the policy will respond.
Finally, let’s talk about how you get product recall insurance for your company.
This is a unique coverage form, so in my opinion it’s a policy that needs to be customized and tailored to each buyer’s unique needs. That means you need an expert and skilled broker, like The Coyle Group, to help guide you through the process.
Buying a policy online without an expert will likely result in getting a policy that doesn’t fit your specific needs. If you’re looking to insure product recall or product liability for a vitamin, supplement, or nutraceutical company, why not give us a call. I’d love to hear from you.
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