Product Recall Insurance
Product recalls happen more often than you think. Whether you make or sell a consumable product or a durable product, there are certain risks and costs associated with a recall that are NOT covered by your general liability/product liability insurance policy. Large and small businesses should consider the addition of Product Recall Insurance to their coverage portfolio as it is affordable and available. Without it, the costs of a recall can crush any company. In this video, I’ll explain in greater detail what Product Recall Insurance is, why you need it, how to get it, and what to expect.
Top Five Reasons to Purchase Product Recall Insurance
- Product recalls are tremendously expensive and can bankrupt a small business.
- Even if you could afford to cover a recall out of pocket, the added costs of rehabilitating your company’s brand image and reputation (covered by a recall policy) are prohibitively expensive.
- Support – if you need to recall a potentially dangerous product, would you know what to do or how to handle it? Especially given the urgency that’s required? With recall insurance, you get access to a team of people to guide you through the process to get it done right and efficiently.
- Recall Insurance is not just for consumable products. Durable products and component parts are also subject to recalls.
- most of all, peace of mind. Sure, you take all the proper steps to manufacture, distribute or sell goods that are free of contaminants or defects, but you never know what may happen or could happen even after those goods leave your control. The potential for catastrophic loss is significant, and recall coverage gives you peace of mind and security knowing you’re insured for that potential scenario.
What Types of Businesses Need Product Recall Insurance?
We recommend that any business that manufactures, distributes, or sells products to consumers consider this insurance protection. The businesses which most often do purchase recall insurance are:
- Food and beverage manufacturers, distributors, retailers
- Consumer electronic manufacturers and distributors
- Children’s toys manufacturers and distributors
- Medical devices manufacturers and distributors
- Automotive parts manufacturers and distributors
- Pharmaceutical & Nutraceutical manufacturers, creators, distributors
- Component parts manufacturers
- Any consumable and non-consumable durable products manufacturers, distributors, and importers.
What is a Coverage Trigger for a Products Recall Policy?
A coverage trigger is something, as its name implies, triggers the policy into effect. Most product recall policies are triggered by voluntary recall when there is an imminent threat of harm. In this video, I describe policy triggers in more detail. What is a Trigger In a Product Recall Policy?
What’s the Difference Between Product Recall & Product Liability Insurance?
These two forms of insurance are similar but very different. Both deal with the products of a business but from different perspectives. Here are a few of the differences between the two:
Products Recall Insurance
Is not part of your general liability insurance (although some insurers do provide a small limit in their policies for manufacturers)
It specifically covers the cost of recalling potentially dangerous or hazardous products from the marketplace.
Will not cover lawsuits alleging bodily injury or property damage from products.
Product Liability Insurance
It is part of your general liability insurance.
It is intended to respond to lawsuits alleging bodily injury or property damage.
It does not cover any costs associated with recalling products, even following a covered claim for a dangerous product.
What is Covered on a Product Recall Policy?
Most product recall policies are broken into two sections: first-party or direct expenses and third-party expenses. We’ll break it down here:
First-Party or Direct Expenses
These are going to be expenses directly borne by the insured (you) when a product must be recalled:
- The cost of notifying customers, distributors, and retailers. This may include advertising, direct mail campaigns, newspaper ads, social media, or other messaging, which can be expensive based on how broadly you distribute your products.
- Retrieving your products from store shelves, distributors’ warehouses, and other points and then destroying that product.
- Lost Profits/Business Interruption – Your operations may need to be suspended to deal with a recall or entirely clean a facility if contamination has been found, which will impair earnings.
- Replacement Costs – when a defective product is recalled, it often needs to be “replaced” in the market, and this coverage element pays for the cost of that product to be made and redistributed.
- Reputational Damages – this is often an optional coverage added to a policy and covers your costs of repairing the damages to your reputation following a recall. Often, consumers will curtail purchases of a product being recalled due to the negative press, which impacts earnings, so expenses for PR campaigns and crisis management are needed.
This portion of the policy is going to pay for the expenses and costs borne by third parties, typically firms that use your product or sell your product. The biggest third-party expense driver is the customer’s lost profits. This is especially needed when your product is a component of another product your customers sell. So, when your product is found to be defective, and it affects your customer’s ability to sell or deliver their goods, they suffer a loss of income or profit, which a recall policy can cover.
In addition to first and third-party costs, many product recall policies offer options to customize a policy to a client’s specific needs, as well as reimburse the costs of consultants to assist with the recall and recovery process.
What Does Product Recall Insurance Cost, and How Do You Get It?
The cost of Product Recall Insurance is based on several factors, including:
- Your Industry – what do you make, sell or distribute?
- Sales volume
- Where are you in the distribution chain? Manufacturer, wholesaler, importer, co-packer,. retailer, etc.
- Scope of coverage: what limits of coverage you purchase, what options you will include, and what deductibles you select all influence the premium.
- Finally, your loss history (have you had recall claims before) and your risk control process. What do you do relative to quality control and distribution controls?
All these factors roll up into the pricing formula for what you’ll pay for product recall insurance.
Creating a Food Recall Plan
Create a Product Recall Plan (non-food)
For non-food manufacturers, this guide will help you and your company to come up with a comprehensive plan to manage recall risks and have an action plan in place should a recall be triggered:
In addition to creating a recall plan, what else can you do to prevent or prepare for a potential recall?
In addition to creating a recall plan, what else can you do to prevent or prepare for a potential recall?
- Create a recall committee or task force to lead a recall and coordinate a response with your product recall insurer.
- Maintain a copy of your recall plan and conduct annual training sessions needed to execute the plan. Have that plan accessible to all parties on the recall committee.
- Maintain a list of local and industry media contacts should a recall occur, and you need to communicate with media outlets. Your product recall policy will help coordinate with PR and crisis management issues.
How can a Manufacturer Prevent a Product Recall?
There are several steps that a manufacturer can take to prevent a product recall, including:
- Implementing strict quality control measures to ensure that all products meet safety and regulatory standards. This can include regular testing and inspections of raw materials, finished products, and the manufacturing process itself.
- Establishing clear and comprehensive product documentation, including detailed instructions for use and any necessary warnings or precautions.
- Implementing effective communication and reporting procedures to identify and address any potential issues with a product quickly. This can include establishing a system for receiving and responding to customer feedback, as well as regular audits and evaluations of product safety and performance.
- Conducting regular risk assessments to identify potential hazards or vulnerabilities associated with the products and implementing measures to mitigate those risks.
- Working closely with suppliers and distributors to ensure that all products are handled and stored properly and are not exposed to any potential contamination or damage.
Overall, preventing a product recall requires a commitment to maintaining the highest standards of quality and safety throughout the entire product development and manufacturing process. By implementing effective controls and procedures, manufacturers can help ensure their products are safe and meet all regulatory standards.
Why should I get Product Recall Insurance from The Coyle Group?
- We are experts in this insurance field and can guide you in making the most effective decision.
- We access a broad cross-section of the insurance marketplace to ensure that you’re seeing all the options and getting the best deal possible. You don’t need to engage multiple brokers or online sellers to get quotes. We save you the time and headaches associated with finding the right protection.
- In addition to product recall insurance, we do all forms of business insurance, so if you’d like us to handle your property, general liability, workers’ compensation, business auto insurance, and everything else, we’d be happy to work with you on everything you need and make it convenient for you.
- At The Coyle Group, you get a dedicated account executive to manage your account daily and be your main point of contact. Someone who is helpful and friendly and who you can build a relationship with.
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