Handling a product recall could either establish or damage your company’s reputation. It’s crucial to remove hazardous items from the market immediately to protect your clients, finances, and reputation from potential damage. However, you can have peace of mind knowing that your company gets coverage for financial strains of product recall if you have product recall insurance.
Product recall insurance is an add-on to your business insurance policy. It is designed to cover you when a product you manufactured and sold is recalled. In addition, if a product is defective or causes bodily or property damage to a client, you may need to recall it. Furthermore, this coverage pays expenses for recall and offers risk management services to lower the effect of product recall.
How Does Product Recall Insurance Work?
Your business might encounter various kinds of expenses to handle if a consumer product recall is introduced. Product recall coverage can support paying off costs you encounter during that process. This includes media notification, public image management, payroll charges for overtime-working workers, and replacing and discarding expenses of the product.
This policy also covers other costs that may arise during the product recall process. These expenses may include extra storage space, additional transportation, lodging, and meals if your company requires rent. Above all, product recall insurance is different from product liability and could get coverage if you have general liability insurance.
Types of Product Recall Insurance
Generally, product recall insurance is a type of coverage that supports businesses in paying for financial expenses associated with the removal of faulty products from the market. In addition, product recall insurance offers coverage for the two types of product recalls, which are as follows:
• Voluntary product recalls
Voluntary recalls occur when a producer detects faults in a product and decides to recall it without being legally obligated. Although these recalls are not necessarily required by legal requirements, it’s still essential to consider them if you want to keep trust with your client.
• Involuntary product recalls
An involuntary recall happens when businesses are required by government regulators to recall certain products due to safety concerns. For instance, if the Food and Drug Administration discovers a food product contains safety hazards or contamination that poses a risk to consumers, they might demand an involuntary recall.
What Does Product Recall Insurance Not Cover?
Lawsuits resulting from faulty, dangerous, or incorrect products are excluded by product recall coverage. However, this kind of claim gets coverage by a commercial general liability (GL) policy’s product liability section. Also, product recall coverage is designed particularly for paying a company for its first-party expenses to fix risky conditions and lower the potential for further losses.
How Much Does Product Recall Insurance Cost?
The average cost of product recall insurance is affected by various kinds of factors such as the industry, product type being manufactured or sold, product risk level, coverage limits, and claims history for the business.
Moreover, the preferred deductible, the coverage amount, and the business risk management process could affect the cost of product recall insurance. Companies that are more likely to experience product recalls will often pay higher premiums.
Reasons to Get Product Recall Insurance
When a product is recalled, product recall coverage helps policyholders cover any financial losses that may have taken place. This policy offers coverage to businesses against losses in finance and bankruptcy caused by product recalls. Moreover, the following are the primary reasons for getting product recall coverage:
• Recalls remain high
Product recalls are a common occurrence, with companies rarely releasing products due to safety or health concerns, making them a daily occurrence. In the fiscal year 2023, the Food and Drug Administration (FDA) disclosed almost 5,000 product recalls. Furthermore, product recalls are primarily attributed to devices, with food and cosmetics being the second-largest category.
• Government oversight
There is more government oversight than ever before. Moreover, stricter product safety regulations are being implemented by the US government. The Consumer Product Safety Improvement Act of 2008 provides authorities with enhanced regulatory and enforcement tools for infant products and toys. The Food Safety Modernization Act, passed in 2011, aims to prevent foodborne illnesses by implementing stricter regulations and monitoring standards.
• Recall expenses
Recall expenses are unaffordable. The price of a product recall starts to rise as soon as the identified product is taken off store shelves and shipped. In addition, products frequently need to be taken out, destroyed, disposed of, and then replaced.
Who Needs Product Recall Insurance
Product recall coverage can be advantageous to any company that produces supplies and sells products. However, companies working in industries like food and beverage, automotive, consumer goods, pharmaceuticals, industrial machinery, electronics, and children’s products might find this coverage beneficial.
How to Get Product Recall Insurance
You can get product recall insurance by comparing coverage limits from insurance companies, agents, and brokers that sell general liability (GL) insurance. Furthermore, simply contact your current agent or company and inquire about a product recall endorsement if you already have a GL policy. Moreover, it’s advisable to get a separate product recall policy, depending on your product and industry.
