Article October 7, 2020

Is product recall insurance right for my business?

For some companies, a product recall can present a true business crisis. Many businesses are still unaware of the full extent of the cover available to them or that they are even able to buy product recall insurance.

We understand that product recall insurance can sometimes be overlooked. To highlight the true value of product recall cover and provide some insight into a good policy, here are six reasons why buying a standalone product recall policy is the right decision for your business.

  1. You’re a manufacturer or you use another company to manufacture your product

    Every manufacturer has product recall exposure, and regulatory scrutiny has been increased over the last five years. It is no longer enough to believe that a product recall event could never happen to you - manufacturing or human error could strike at any time.

    Product recall insurance provides peace of mind in a crisis, providing you with the support you need in investigating a product recall event, as well as replacing the loss of sales to keep your business afloat. Cover isn't just for manufacturers themselves though. Your cover should also provide protection for those that manufacture for you, because you can’t rely on their finances to reimburse you - you need to protect your brand and reputation at all times.

  2. You don't have full oversight over the operations of your suppliers

    Any product is only as good as its worst component or ingredient. While you may have full oversight of the products you manufacture, it’s impossible to have the same insight into the operations of your suppliers and co-manufacturers.

    No firm should rely on a third-party indemnifying them in order to survive a recall event. By indemnifying you directly for your loss of sales, a good policy will protect your cash-flow allowing you to avoid severe business interruption losses. The first-party indemnity of product recall insurance provides cash flow protection, allowing you to continue operating rather than suffering the financial consequences of a serious product recall event.

  3. You rely on your major customer contracts

    Increasingly, customers and retailers are requiring manufacturers to buy product recall insurance as part of their contractual obligation, often with significant limits. Underwriters can work with you to address these contractual requirements, allowing you to take your contract negotiations to the next level.

    Purchasing cover can also demonstrate your commitment to risk management and your customers’ protection in the event of a possible recall, providing them with peace of mind and helping you to stand out from the competition.

  4. Product recall cover is probably not included in your liability policy

    Product liability policies are important for protecting a manufacturer or distributor against being sued when their product has caused bodily injury or property damage to a third party. By comparison, product recall insurance is a first party indemnity policy focused on you and your recall event losses, providing completely different cover and protecting you even before your product has left your care, custody and control.

    If product recall cover is provided under your liability policy, it will likely be limited to recall costs only and heavily sub-limited, leaving you under-protected. You should consider holding both a liability and a recall policy to provide you with complete peace of mind.

  5. Access to 24/7 expert advice should the worst happen

    A product recall event can often be the great unknown, and it can be hard to know exactly what has happened, and what to do in order to rectify the situation quickly.

    As part of the cover provided under the policy expert advice can be accessed to help you make the best decisions for your business.  These experts can help with initial investigation costs, as well as crisis communications and PR.

  6. Product recall insurance does much more than cover product recall costs

    The costs associated with a product recall extend far beyond retrieving the product from customers or off store shelves. In reality, there are costs associated with identifying and rectifying the issue, redesigning or remanufacturing the product and getting it back to market, as well as lost earnings or contracts as a result of the recall.

    In addition to covering the cost of the recall itself, product recall insurance is a full first-party indemnity offering that extends coverage to each of these associated costs to help ensure your business can weather the crisis.

Do you have questions about whether product recall insurance is right for your business? Get in touch with your broker, or reach out to