Product recall insurance for consumer goods

In today’s global marketplace, the risk of product recall has never been greater. In the first six months of 2020, the European Commission issued 834 consumer good related product safety/recall alert notifications.*

Increasing regulatory scruitny, pressured margins, complex supply chains and changing technology can lead to an increase in the occurrence and severity of product recalls.

Some product defect risk can be mitigated using technology during production, but errors can affect even the most prestigious, global product manufacturers and brands.

Crisis planning and high-standard quality controls are key to mitigating the risk of product recall.

Insurance cannot replace effective business governance, but product recall insurance can support and complement an effective risk management strategy by minimising the financial repercussions of a product crisis and enabling brand recovery.

How can product recall insurance help you?

Product recall insurance can help a company to protect:

• Shareholder value
  Product recalls can have a significant effect on a company’s balance sheet, causing a cash shortage that can eliminate profit.
  We’ll work with you to make sure that product recall protection is embedded in your wider risk management strategy so that you meet your fiduciary duty to protect shareholder value.
• Brand and reputation
  When risk management systems and controls do fail, what matters is how you respond and manage the event.
  We’ll help you ensure your investment in risk transfer includes any crisis support you may need to respond to crises, protect and rehabilitate your brand.
• Costs expenditure
  Whether incurred by your company or a third party such as a direct customer. The costs to cover labour, transportation and disposal due to a product recall can be expensive. A product recall policy would typically cover these types of costs

What can be covered?

Product extortion

Cover for any threat or connected series of threats to commit malicious product temper, for the purpose of demanding extortion costs, communicated to the insured.

Product defect

Design or manufacturing error.

Malicious product tamper

Provides an insured with coverage for actual or threatened alteration or adulteration of any insured product(s) which is intentional, malicious and illegal.

Government recall

Provides coverage for the insured where a government authority or safety agency orders or mandates a recall.

Key coverage comparison

Please note below is a generalised comparison tool that selects a variety of covers where the triggers may be similar, but where discussion of the differences regarding cover will help understanding of our offering.

There are many derivatives of these wordings; it would not be possible to include every eventuality. For this reason, while we have made every effort to ensure this is a fair comparison there may be examples where the below assessment is not accurate in some areas. This is a guide only and professional advice should be sought from the appropriate professional before making any decisions based on this comparison.

Recall expenses

Rehabilitation of brand

Business interruption

Consultancy advice

Third party liability

Triggers

* Not given as standard and likely to be sublimited

Case study

All names, characters, and incidents portrayed in the case studies are fictitious. No identification with actual persons (living or deceased), places, buildings, companies, entities or products is intended or should be inferred.

Design flaw raises risk of serious injury

A furniture manufacturer with annual sales of 100 million euros discovered a design flaw in its best selling product, a children’s bunk bed unit.

A defective fixing in the ladder assembly was prone to breaking under strain, posing a fall and laceration risk.

Though there were no reported accidents involving the defective bunk beds, the likelihood of serious injury required the recall of 50,000 units of the affected product.

The manufacturer was forced to refund customers for the affected units, costing $6 million. In addition to this, the cost of recovering, storing and destroying affected product cost the insured around $8 million.

The retailer’s brand suffered significantly as a result of the issue, with sales falling by 20% by the end of financial year.

Consumer product recall insurance would offer comprehensive cover in this scenario, triggering where an event would cause bodily injury and/or property damage.

In addition to the manufacturer’s direct recall costs, the coverage would help mitigate the disruption a recall can cause, by indemnifying against brand damage and business disruption.

Source - *https://ec.europa.eu/consumers/consumers_safety/safety_products/rapex/alerts/