What are the risks of product recall in life science?
In today’s global marketplace, the risk of product recall has never been greater.
Increasing regulatory scrutiny, pressured margins, complex supply chains and changing technology can lead to an increase in the frequency and severity of product recalls.
Crisis planning and high-standard quality controls are key to mitigating the risk of product recall. But errors can affect even the most prestigious companies.
If a product is recalled, the impact can be devastating. As well as recalling and replacing products, costs can include analysis, clean-up, legal claims, crisis communication and brand rehabilitation, which are not covered by general insurance or product recall extensions.
How can Contaminated Products Insurance help you?
Product Recall Insurance provides comprehensive cover and dedicated crisis consultancy support that can minimise the financial and reputational damage if a recall does occur.
It can help you 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 make sure you get the crisis support you need to protect and rehabilitate your brand.
Costs expenditure
Product Recall Insurance pays for costs incurred by your company or a third party such as a direct customer. The cost of labour, transportation and disposal due to a product recall can be expensive.
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Government recall/shutdown
Covers government-mandated recall and government shutdown of a manufacturing or processing facility.
Contamination, whether actual or threatened
Perils can include accidental contamination, wilful but not malicious product tamper, malicious product tamper, product extortion and adverse publicity.
Packaging defect
Risks associated with errors in the design, manufacture, production or processing of packaging material.
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Global Life Sciences Trends Report 2021
Key coverages
Recall expenses
| Coverage | Contaminated products insurance |
|---|---|
| Recall costs | ✔ |
| Physical/chemical analysis of product to establish cover | ✔ |
| Inspection costs | ✔ |
| Destruction costs | ✔ |
| Product replacement costs | ✔ |
| Slotting and re-slotting fees | ✔ |
| Customer loss of profit | ✔ |
Rehabilitation of brand
| Coverage | Contaminated products insurance |
|---|---|
| Public relations assistance | ✔ |
| Promotional offers | ✔ |
| Sales and marketing expenses | ✔ |
| Point of sales notices | ✔ |
| Advertising costs | ✔ |
Business interruption
| Coverage | Contaminated products insurance |
|---|---|
| Overheads including wages/salaries and depreciation of plant and machinery | ✔ |
| Clean down and repair of machinery or plant | ✔ |
| Subcontracting of manufacturing | ✔ |
| All affected products included | ✔ |
Consultancy advice
| Coverage | Contaminated products insurance |
|---|---|
| Crisis consultancy with no deductible | ✔ |
Third party liability
| Coverage | Contaminated products insurance |
|---|---|
| Resulting from product liability litigation | ✖ |
Triggers
| Coverage | Contaminated products insurance |
|---|---|
| Cover for product that 'would' cause bodily injury or damage | ✔ |
| Recall ordered by government authority | ✔ |
| Cover for alleged safety issues (adverse/negative media) | ✔ |
*The cover available will depend on each clients individual circumstances and availability in the market at the time of placement. Cover will be subject to the agreed policies terms and conditions.
Specialist cancer drug contaminated
An international pharmaceutical manufacturer with annual sales of $90 million, discovered contamination of an active ingredient in one of their best-selling products, a specialist cancer drug.
They issued notification to the relevant authorities and were ultimately forced to recall and destroy several lots of the product. The direct costs were $10 million and included contractual penalties from retailers, PR and communication costs, the cost of recall, refund and destruction.
They also lost over $20 million in gross profit after six months of production was destroyed due to the contamination. This resulted in the manufacturer having to use a significant portion of its reserve capital to survive, causing its share value and dividend payments to fall significantly.
Contaminated Products Insurance would protect against all of these costs. Third party expenses such as customer loss of profit and contractual penalties can be covered, while the business’ direct expenses also indemnified.
Critically, contaminated products insurance can provide business interruption and brand rehabilitation costs, which would allow the business to respond quickly to a crisis and regain their market share, minimising the financial and reputational impact of a contamination event.
Note: All names, characters, and incidents portrayed in the case study above are fictitious. No identification with actual persons (living or deceased), places, buildings, companies, entities or products is intended or should be inferred.
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Get in touch to find out more and discover smarter ways to managing your product recall risk exposures in the life science sector.
