Despite the frequency and high costs of a recall, most companies don’t adequately plan, prepare, practise for or buy insurance against product recall events. In addition to proper insurance covers, careful planning is essential in managing the risk of a recall. Inspire are able to advise and guide you through this complex process and work alongside you to find the most suitable solution to meet your needs.
Product recalls or contamination costs can easily run in to the millions of pounds. In addition to the physical expenses of withdrawing the product from the market, the knock on effects may also be costly. In addition to proper insurance covers, careful planning is essential inmanaging the risk of recall:
First-Party vs. Third-Party Exposure
There are two categories of exposure to loss for a company faced with a product recall incident: first-party operational losses to the company and third-party liability losses to injured persons.
Unlike third-party losses, first-party loss is often overlooked. In addition to the initial recall expenses, the potential long-term losses from the damage to a company’s reputation and loss of sales may continue for months or even years. Since these losses can be catastrophic, this article focuses on ways to manage first-party incident exposures.
Risk Management Considerations It is a common misconception that product recall is covered under a product liability policy. Product liability cover generally excludes contamination and recall events. The addition of a product contamination or product recall policy protects a company’s bottom line by covering the direct costs of recall. But transferring the risk is only one part of closing the recall exposure gap.
Every company with products on the market, regardless of size, should establish solid product risk management policies and procedures for handling a recall or contamination event.
Recall events can easily cost millions yet many companies fail to protect themselves against the possibility.
Product Recall Insurance – Contaminated Product Insurance
Malicious tampering, Intentional contamination, is prone to publicity, so it may seem common. In reality, malicious tampering is rare, but when it strikes, it tends to be a very severe loss. Managing this risk exposure can be difficult, as motives vary widely.
Accidental contamination This is an unintentional error in the manufacturing, packaging or storage of a product. This includes mislabelling of ingredients, contamination by a foreign object or chemical, etc. This peril is the most common, but the majority of incidents are discovered prior to shipment. Therefore, these events receive very little publicity. As opposed to malicious tampering, this peril has very high frequency but relatively low severity. While most accidental contaminations are small events, historically the largest losses have been due to accidental contaminations.
Product Extortion This is the most difficult peril to characterise. Its frequency is between that of malicious tampering and accidental contamination. Its severity, however, is more difficult to quantify. Most extortions are amateurish hoaxes, but may evolve into outright tampering cases, which can be very costly.
Product Recall Insurance including – Product Liability / Product Guarantee / Financial Loss
There are several types of cover, each designed to cater for a different aspect of liability in a recall or contamination case. At Inspire Insurance, we work with you to make sure your product recall policy provides you with indemnity in the following areas:
Recall Expense This out-of-pocket expense is associated with executing a large-scale product withdrawal. It includes costs like extra temporary employees, overtime, public safety messages, special testing and handling, destruction and disposal costs and crisis management and/or PR consulting fees.
Replacement Costs As the name implies, this is the cost of replacing any product that had to be destroyed. This includes the cost of materials, labour and overheads directly associated with producing the product.
Lost Profits This indemnifies the insured for profits which would have been earned on the withdrawn products and also for profits which would have been earned on future product sales, but which were not earned because of resultant future sales declines. This is usually limited to a specified time period.
Brand Rehabilitation Most underwriters will also indemnify the insured for necessary rehabilitation of the recalled product’s consumer image. This includes costs like extra advertising, increased expenditures to rush a new product to market and special promotions to rebuild public trust in the manufacturer and its products.
It is this approach that has led us to win a series of prestigous industy awards;
UK Broker Awards 2013 Finalist. British Insurance Awards 2013 Finalist. Insurance Times Awards 2013 Finalist. Coventry Telegraph Business Awards 2013 Category Winner. Coventry Telegraph Business Awards 2014 Category Winner. Insurance Institute Commercial Lines Broker of the Year 2013 Finalist
Why Inspire Insurance
Inspire Insurance is the specialist provider of bespoke insurance solutions for businesses of all sizes and in every sector. With a total of 50 years combined experience and a range of specialist expertise, our staff are perfectly placed to advise you on the best cover for your business and the specific market conditions in which you operate.
As well as finding you the best protection, ours is an ongoing collaboration in which we regularly reassess your needs as your company grows. Authorised and regulated by the Financial Conduct Authority, Reference No. 553630. Registered in England & Wales, Company Registration No. 7164836. Registered Office. Unit 3, Mercia Business Village, Westwood Business Park, Coventry, CV4 8HX. © 2014
Inspire Insurance Services Limited All Rights Reserved. Member of the British Insurance Brokers Association.
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