Defending Against Product Recalls
According to the U.S. Consumer Product Safety Commission data, there are an average of 35,000 consumer product-related injuries every year.
Despite recall frequency and the potential for significant costs, most manufacturing companies do not adequately plan and buy insurance to protect against product recall events. It is a common misconception that product recalls are covered under general or product liability insurance policies. Liability insurance policies cover bodily injury and property damage but often exclude product recalls. By adding a product contamination or product recall policy to your insurance program, you can help protect your exposure by covering the costs of a recall. The below guidance reviews the common coverages in a product contamination and recall policy and ways you can help protect your organization against these types of claims.
Product Contamination and Recall Policies Explained
There are several types of product recall policies. RBN can work with your company to ensure your product recall policy provides coverage for:
- Recall Expenses: Example costs include temporary employees, overtime, public safety messages, testing and handling, destruction and disposal costs, and crisis management and/or PR consulting fees.
- Replacement Costs: These can include the cost of materials, labor, and overhead directly associated with producing the product.
- Lost Profits: This covers profits that would have been earned on the withdrawn products.
- Brand Rehabilitation Expenses: This covers the costs associated with rehabilitation of the recalled product’s consumer image. This includes costs like advertising, expense to rush a new product to market, and special promotions to rebuild public trust.
Product Recall Defense Process
In addition to securing insurance, comprehensive risk management practices are essential to minimize the exposure from a recall event. A product recall risk management pyramid plan outlines a series of defenses to counter the threat of an incident. As the pyramid rises, the plan becomes more specific at isolating and eliminating product incident threats.
- Commitment to Quality: Dedication to turning out the highest quality products into every aspect of your business is the best countermeasure to the threat of a product recall crisis.
- Contingency Plan: Every company should have a workable product recall and crisis management plan.
- Training: Contingency plans need to be tested and honed under simulated conditions to ensure viability.
- Expertise: Explore hiring external professionals to review your plan.
- Insurance: Despite multiple levels of precautions, a recall can still result in large expenses and lost profits. The last line of defense is a product recall insurance program.
RBN Can Help
The product recall insurance marketplace is highly specialized. RBN can help secure the coverage you need and collaborate with you to develop a business contingency plan that meets your specific needs.