Many manufacturers assume a product recall will never happen to them – but even the most careful companies can face unforeseen risks. In the past few years, the manufacturing industry faced an increasing number of product recalls. For 2022 in the US, millions of pharmaceuticals, 955 vehicle parts, 911 medical devices, 423 food items and 286 consumer goods were recalled. Product recalls will likely continue to increase over time as technology improves defect detection, supply chain challenges occur, and government regulations tighten.
One would assume that product recalls are covered under a general or product liability policy, but in most cases these policies explicitly exclude all recall costs. Product liability insurance covers third-party bodily injury or property damage caused by a defective product, and subsequent costs related to this, such as legal defense costs, settlements, medical expenses, and other compensation for affected third parties.
Especially in manufacturing, it is essential for companies to have the necessary product recall programs in place. Product recall insurance is a first-party coverage for the manufacturer. Product recall insurance covers costs related to recalling your product, which may include: media notification, public relations, reputation management, overtime payroll for crisis response, product removal, destruction, disposal, replacement costs, loss of income, and brand rehabilitation expense. Loss of income coverage is critical because recalls generally halt production or sales, and other standard policies do not cover this type of financial loss.
Brand rehabilitation expenses help restore trust that consumers had before the recall, which is key for the long-term survival of the business. With all these costs in mind, it is easy to understand why a company may struggle to stay afloat in the event of a product recall. For example, in 2017, Takata Corporation filed for bankruptcy after an automotive recall due to defective airbag inflators, demonstrating how even large companies can collapse under this type of pressure.
While product recall insurance is a crucial safety net, there are proactive risk management steps to be taken. These steps include enforcing strict quality control protocol, preparing and testing contingency plans in the event of a recall, and seeking advice from professional consultants. Your last line of defense for a recall should be in transferring the risk through a product recall insurance policy. No company expects a recall, but being prepared can be the difference between a manageable problem and the end of your business. Product Recall Insurance protects you against the risk that you least expect.
If you want a discussion on the benefits of product recall insurance, give our Risk Management Consultants at Rue Insurance a call—(609)-586-7474. Thanks and remember…“Be Ready with Rue.”
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About the Authors
Robert Hemsing is a Sales Intern with Rue Insurance this summer. He is a rising senior at Providence College, pursuing a degree in Finance and Data Science. During his internship, Robert will be focusing on the Property & Casualty market and the manufacturing industry for Rue Insurance.
Melissa Cooke joined Rue in 2022 as the Director of Sales, bringing over 20 years of management and sales experience. As Director of Sales, Melissa is responsible for the strategic direction, vision, growth and performance of the sales team. As the leader of the sales team, Melissa helps the department define and navigate the sales cycle. Melissa is also responsible for the training and developing our sales internship program at Rue Insurance.
