5 Reasons For Product Recall Insurance

By Sam Lewis

As global safety regulations continue to increase, so does the risk of falling victim to a recall. The choice for manufacturer’s to not purchase recall coverage can have destructive consequences

Consumers continue to see the benefits of the food supply chain expanding to a global level. However, with that growth comes more risk of human error to damage or contaminate products. Luckily, improving technologies, as well as legislation, are helping reduce the number of recalls manufacturers must endure. Still, they will happen and companies should be prepared for them.

Product recall insurance offers reimbursements for financial losses suffered by companies when a product is recalled. For food producers, this generally means contaminated products, if consumed, could cause illness or injury. Even if a recalled product causes no liability, the policy holder still receives reimbursements for losses related to the incident.

Large companies may have the assets to cover losses suffered during a recall, but for many businesses, the costs and losses of a product recall can force them into bankruptcy as the financial losses are just too much for the company to absorb. For risk managers, there are five areas that should be reviewed when considering purchasing product recall insurance.

Recalls Are A Daily Occurrence

More often than not, some product has made the evening news and headlines of the newspaper by having a contaminated product being recalled for safety or the potential to make consumers ill. According to the FDA, nearly 10,000 products were recalled throughout 2012. This is the most in the agency’s history. Safety issues occur domestically, but are more likely to occur in overseas production where stringent standards of the U.S. and European Union are not met. As the supply chain continues to go global and safety standards to not adapt, expect a growing number of product recalls.

Strong Government Supervision

Regulations that demand strict product safety standards are a necessity. FSMA along with the Consumer Product Safety Improvement Act of 2008 are two examples of how the U.S. is upping its protocols when it comes to consumer safety. While these pieces of legislation aim to keep the public safe, they also force improved product standards. Will your products meet the standards of the elevated benchmarks?

Recalls Are High-Priced

The announcement of a recall is just the start of a series of expenses. From pulling the product out of stores’ shelves, to destroying contaminated or damaged products, all the way to replacing the recalled products, the cost of these actions isn’t cheap. Additionally, public relations personnel and lawyers are often part of the recall to handle media and government officials. The cost of all these actions often totals in the millions of dollars.

It’ll Happen To Other Companies, Not Mine

Demonstrated by the number of recalls from the FDA in 2012, the likelihood of a recall happening to your company is greater than ever. No company is immune to a recall. Even companies with the most stringent safety protocols can fall victim to a product recall. The biggest reason: human error. Still, many companies do not accept the idea that human error will negative impact the quality of manufactured products.

Recall Insurance Designed To Fit Your Company’s Needs

Based on the type of products your company produces, there are three types of insurance policies to choose. First up, consumables, such as food, beverages, and pharmaceuticals, are covered for accidental contamination. Next, consumer goods’ coverage is triggered by the knowing a product in defective. Finally, non-consumable merchandise coverage is triggered by property damage, injury, or imminent danger from using the product. Each policy type will cover the insured member for financial losses suffered from the event, including actual recall expenses, loss of profits, replacement costs, rehab expenses, and additional expenses.

Protect Your Brand With A Quality Management System

Companies are at substantial risk or a product recall occurring. These events can not only affect a manufacturer’s bottom line, but also its good name. The cost of recall insurance is significantly less than a ruined brand name or complete financial dismay.