Should You Consider Product Recall Insurance?

By September 16, 2014 Business Insurance

What would you do if your product or component parts of a product were found to have the potential to injure, contaminate or damage property? In an era of increasing regulation and heightened consumer awareness, a product recall can be time consuming, costly, and most importantly, damaging to the reputation of your business.

What your company is responsible for in the event of product recall

According to a handbook released by the Consumer Product Safety Commission in 2012, you may be responsible for the following in the event of a product recall:

  1. Locating all defective products as quickly as possible
  2. Removing defective products from the distribution chain and from the possession of consumers
  3. Communicating accurate and understandable information in a timely manner to the public about the product defect, the hazard, and the corrective action. (All informational material should be designed to motivate retailers and media to get the word out and consumers to act on the recall.)

Sounds like a costly task, right? It can be. Think about it: there is the cost of advertising, mailing and transportation. You may need to hire independent contractors or temporary staff to handle the recall. Then there’s the cost to dispose of the affected products or products that contain the affected products. The list goes on and on.

How Product Recall Insurance can help protect your business

Product Recall Insurance reimburses you for the financial impact placed on your company when a recall occurs. Coverage is “triggered” when there is a government mandated recall and/or when there is an insured-initiated recall when known or suspected defects or tampering can lead to bodily injury or property damage to consumers.

What must be considered when creating a Product Recall Insurance program:

  1. The cost to replace product. The cost to produce or acquire a like replacement product, including the cost to return the affected product to the purchaser. This also includes the cost of any unsold finished stock.
  2. The customer’s consequential loss of profit. The loss of profit incurred by your direct customers as a consequence of the product recall or the product recall of a customer’s product because it contains your product.
  3. The cost of good faith advertising. Those advertising costs paid for the specific purpose of regaining customer approval or faith in your product.

We realize that producing your product and getting it to your customer is your number one concern. That’s why the cost for protecting against a potential product recall is worthwhile when you consider that the risk can destroy your company. At NAP, our goal is to make sure your company and your products are protected for years to come. If you’d like more information, please contact us.

All insurance policies are different. Be sure to review your insurance policy for specific information about coverages available to you. Nothing in this post is meant to suggest a guarantee of coverage.