Don’t let a product recall event cripple your business. In this video and post, I’ll describe how product recall insurance can mitigate substantial financial risks and keep your company running smoothly in the face of a recall crisis.
Hi, I’m Gordon Coyle, and here I break down issues and questions that business owners have about insurance and risk.
In this video and post, I’m going to explain the importance of product recall insurance for manufacturers, wholesale distributors, importers, and retailers.
If you fall into one of those categories I know you work hard to ensure the quality and safety of your products.
But, despite your best efforts, sometimes things can go wrong.
There could be a defect in the manufacturing process, a problem with a component supplier, a mislabeling issue, or a problem with an ingredient you use to make a product.
Whatever the cause, a product recall can have a major financial impact on your business.
There’s costs like notifying the public, recalling the product from stores and distribution chains, potential legal and regulatory costs, damaged reputation and more.
It can add up into the millions. This is where product recall insurance comes in to protect you and your balance sheet from disaster.
I’m sure you want to believe that you’ll never suffer a loss like this, but in the back of your mind it’s probably a nagging “what if” scenario.
Recall insurance gives you the peace of mind to know that your protected if you should ever face a recall.
So, what is product recall insurance and what does it cover?
Product recall insurance is a type of coverage that protects a business against the financial losses that result from having to recall or pull a product from the market that is, or could be defective or unsafe.
As I mentioned earlier, this type of insurance is often purchased by manufacturers, distributors, importers and retailers of both consumable products and durable products.
It covers the costs of recalling products from the distribution stream as well as the cost of repairing or replacing products.
Coverage can be customized to include reputational damages and lost sales suffered by the company who made, sold or distributed the product requiring recall.
Who needs product recall insurance?
Food and beverage processors/manufacturers are the largest buyers of recall coverage in my experience, followed by other consumable products such as pharma and nutritional supplements.
Consumer good makers and sellers also frequently purchase recall protection.
Another big buyer of recall coverage are firms that manufacture component parts used in other company’s machines or devices.
What triggers coverage?
That’s a great question – many business owners believe that a government order is required to trigger a policy into action, but the fact is that most policies provide a much broader trigger that says if an insured product poses an imminent threat or actual occurrence of bodily injury, illness or property damage, the policy is triggered.
Why does it matter? Why does a company need product recall coverage?
For three major reasons.
- First, recalls are expensive and include things like:
- The cost of announcing the recall which may be television, radio or targeted internet ads. Or notifying customers directly if you know who they are.
- Loss of profit from not selling potentially defective goods that you already manufactured or distributed.
- The actual labor costs to physically pulling the goods from the distribution stream or store shelves and then shipping them back to a facility and then paying to dispose or destroy those goods.
- Brand rehabilitation costs – Think of any product recall you’ve heard about. Do you think brand loyal customers kept buying that product immediately following the announcement of a recall? No, those customers had to be brought back to the fold through rehabilitative marketing and communications.
- Crisis management costs including the retaining of experts in PR and recall consultants
- Your increased cost of operations to spin up more production to replace recalled products.
- Recalling products suspected of being dangerous or hazardous is not covered by your product liability insurance. This is a common misconception. And, as I just itemized, the costs of a recall can be enormous. For a small business a recall can destroy a balance sheet and put a company into bankruptcy.
- Experiencing a recall is scary. Imagine being told by a news reporter, or a lawyer for an injured party, or a government agency that a product you made or sold or distributed just injured someone or worse killed someone, or several people?
Now you’ve got to recall that product so that injury doesn’t repeat itself. How do you do that? How do you manage that process? Who’s going to help you through it? Where are you going to turn.
Without recall insurance you’re on your own and that’s a scary place to be. With recall insurance you’ve got an experienced recall team available 24/7 to help get you through what may be the most frightening experience of your business life.
Now, You may recall your agent saying that you already have recall coverage under your package or general liability policy? So, why do you need a separate policy?
Yes, some insurers add a nominal amount of recall coverage in their package policy or on their general liability policies, it’s common to see this for manufacturers.
But these endorsements are limited in both scope and limits, often providing just $25,000 to $50,000 of protection which isn’t going to go very far in a recall.
In addition, the scope of coverage is typically limited to what’s called “first party” protection so it’s not terribly broad protection.
It may be fine for a start up, but for an established company a stand-alone policy is best. I
t gives you higher limits and broader protection in most cases.
How do you get coverage or quotes?
It makes sense to work with an expert who can canvass the marketplace to find you the right coverage and pricing options, then work with you on an ongoing basis.
That’s what we do at The Coyle Group and we’d be happy to talk about your particular situation and help you with what you’re looking for.
My goal is to make sure you’re 100% satisfied with the entire insurance process and experience.
No pressure, no aggressive sales tactics.
Just expert guidance and advice to make sure you’re making the best choices possible.
Want to learn more?
Click the let’s chat button if you’re on my website, or my contact info is in the description box on YouTube.