Product recall insurance for consumer goods

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 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 tamper, for the purpose of demanding extortion costs, communicated to the insured.

Product defect

Design or manufacturing error that would lead to bodily injury or property damage.

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.

Case study

All names, characters, and incidents portrayed in the case studies are fictitious.

Design flaw raises risk of serious injury*

A furniture manufacturer with annual sales of £100 million discovers a design fault with their best-selling product, a coffee table. The design fault has meant that the legs of the tables are at risk of snapping and splintering when bearing weight that is well within the weight limits set out in the product instructions.

Though there were no reported accidents involving the defective coffee tables, the likelihood of an 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 the 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 the 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.

**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.

For smarter ways to managing your product recall risks, please contact our specialist listed at the top of this page.