Product Recall Insurance

Product recalls often make the news. The latest to hit the headlines is the current active recall of over 250,000 air fryers in the US and Canada.

Sold by Best Buy, the air fryers are being recalled because of fire, burn and laceration hazards. The US Consumer Product Safety Commission has said the air fryers in question are at risk of having their handles melt and break, and of generally overheating, causing the glass door to shatter and risking cut and burn injuries.

The company has received 24 reports of the glass shattering and six reports of their air fryers – Insignia Air Fryers and Insignia Air Fryer Ovens – catching on fire.

Recalls can be triggered by a product safety concern, an error in manufacturing or wrongly labelled ingredients (especially when it comes to animal products or allergens).

There have been some other memorable product recalls over the years:

• Toyota Pedals and Floor Mats

A staggering 9 million Toyota vehicles had to be recalled in 2010 due to malfunctioning acceleration pedals and the tragedy of several resulting deaths, costing the company a whopping $2 billion.

• Fisher-Price Rock ‘n Play Sleeper

4.7 million sleepers were voluntarily recalled by Fisher-Price in April 2019 due to its dangerous design causing babies rolling onto their stomachs, and approximately 100 infant deaths. It transpired that the company had only consulted one physician before launching the product.

• Mattel Toys

In 2007, Mattel recalled 9 million toys, including Barbies and some items of Cars merchandise, due to concerns about Chinese lead-based paint and small magnets likely to be a choking hazard. This recall resulted in a loss to Mattel of at least $30 million.

• Peanut butter recall

In the largest U.S. food recall to date, 3,900 peanut butter products from 361 companies were recalled in 2022 due to salmonella contamination. All products from the Peanut Corporation of America's (PCA) plant in Georgia since 2007 were recalled and, within 24 hours of the recall, PCA filed for bankruptcy.

Product recalls can have a catastrophic impact on businesses, with recalls or contamination costs often spiralling into the millions of pounds. As well as the financial costs of withdrawing a product, an impacted company is almost certain to suffer huge knock-on effects, both financially and reputationally.

Is your business insured against the risk of a product recall?

Any business that manufactures, distributes or sells products should consider Product Recall insurance, regardless of its size or sphere. However, certain industries are more susceptible to product recalls than others, such as the pharmaceutical, automotive, food & beverage and consumer electronics industries.

As product recalls can literally mean the difference between life, death or injury for a manufacturer’s consumers, businesses should always view the safety of their consumers as an utmost priority and have no qualms about making a recall decision, when necessary, despite the inevitable knock to their reputation.

What is Product Recall insurance?

Most companies don’t sufficiently plan or prepare for the risk of a costly product recall, but a Product Recall insurance policy provides invaluable comprehensive cover for you and your business in the event of one.

A policy will often include a pre-incident consultation to minimise the risk of a product recall being required in the first place, and post-incident contingency to deal with its after-effects and loss to a business’s reputation.

Product Recall insurance is not the same as Product Liability insurance, which usually excludes recall events.

What does Product Recall insurance include?

Policies vary, of course, but may include the following:

• Product recall expenses, covering the costs directly related to the recall process, such as notifying customers, transporting and disposing of recalled products and conducting investigations to determine the cause.

• Third-party liability, providing coverage for damages and legal expenses if the recalled product causes harm or damage to third parties, such as consumers, other businesses or property.

• Business interruption cover for financial losses resulting from the interruption of business operations, additional expenses needed to resume operations and loss of future sales, for a certain specified period.

• Product replacement or repair. The costs of repairing or replacing the recalled products, including manufacturing, shipping and installation expenses.

• Contamination clean-up.

• Crisis management and public relations expenses, for hiring crisis management consultants, conducting public relations campaigns and managing the company's reputation.

• Brand rehabilitation, including advertising and special promotions, to rebuild trust in a company or its products.

• A range of pre-incident consultancy solutions.

• Government fines and penalties. Some policies may provide coverage for fines or penalties imposed by regulatory agencies as a result of the recall.

• 24/7 crisis management hotline in the event of an incident.

• Other recall costs like extra temporary employees, overtime, public safety messages, special testing and handling.

Other types of cover

Depending on the nature of their operations and the risks they face, businesses may choose to purchase additional types of coverage to mitigate their exposure to potential losses:  

• Contaminated Product insurance

While Product Recall insurance specifically addresses the costs and liabilities associated with recalling a product from the market, Product Contamination insurance focuses on financial losses caused by contamination of products during the production or distribution process.

Contaminated Product insurance may cover the rare instance of malicious tampering or intentional contamination, or accidental contamination cover - unintentional errors in the manufacturing, packaging or storage of a product, including mislabelling of ingredients, contamination by a foreign object etc.

• Product Extortion insurance

Product Extortion insurance is designed to protect businesses from financial losses resulting from threats of extortion related to their products. Extortion typically involves a demand for money, property or other concessions in exchange for not causing harm to the insured business or its products. Threats may include tampering with products, contaminating them or making false claims about their safety or quality.

Product Extortion insurance is particularly relevant for businesses operating in industries where the risk of extortion threats is higher, such as food and beverage, pharmaceuticals, consumer goods and luxury brands.

 

Product Recall insurance is a vital risk management tool for businesses that face the possibility of product recalls. By providing financial protection, reputation management and legal compliance, Product Recall insurance helps businesses mitigate the financial and reputational risks associated with product recalls, allowing them to focus on their core operations with confidence. If your business deals with the manufacturing or distribution of products, it's worth exploring Product Recall insurance options to ensure it is safeguarded against potential liabilities.

Other blogs which may be of interest:

Health and safety in the workplace - What you need to know

Sustainability in manufacturing - A comprehensive guide

Need further advice? Contact Chris Buchholz today on 07842 021430 or by email, Chris.Buchholz@ascendbroking.co.uk.