Article March 22, 2021

Product recall: Conversation starters

It's important that your clients understand the basic risks faced by their business, here's how to start those conversations.

Before talking about product recall insurance premiums and the coverage, it’s important that clients first recognise some of the basic risks faced by their business, as many may not know where their major exposures lie or that insurance exists to cover them.

To help you get the conversation started, we’ve put together a handful of questions you can ask, along with key talking points for each.

  1. Have you considered your product recall exposure?

    All manufacturers have product recall exposures, and with regulatory activity having increased across the board over the last 5 years, there has never been a better time to consider the potential product recall exposures.

    Whether mechanical error or human error is the cause, a product recall event could happen at any moment, and with the costs quickly adding up as an event progresses, the financial impact could
    be catastrophic.

    A lot of first-time buyers of product recall insurance have recently suffered from a product recall incident, showing how much they now value the cover
    in hindsight.

  2. Did you know your suppliers and co-manufacturers may not fully indemnify you following a product recall event?

    No company should put their faith in a third-party’s ability to fund a recall. There are various scenarios in which it is difficult to recover costs from a supplier or co-manufacturer, these include:

     - A third-party’s refusal to pay some or all the costs incurred (such as loss of sales, brand rehabilitation and third-party costs)

     - A third-party disputing that they are responsible for the recall

     - A third-party not having enough money to pay the costs

     - Rights of recourse having been waived or limited in the supply contract

    Product recall insurance should be thought of as cash flow protection, protecting your business from the impact of increasing costs, while any issues are resolved with your suppliers or co-manufacturers.

  3. Do you have full oversight of your suppliers’ operations?

    A product is only as good as its worst ingredient or component.

    Although testing can be undertaken on incoming materials, not every scenario can be tested for.

    Intentional or accidental adulteration of a supplied contaminated material could result in a finished product being harmful to health, and leave you facing a costly recall event with significant regulator involvement.

    Product recall insurance will indemnify you and protect your cash flow first. Then we will subrogate against suppliers, so you can focus on your business.

  4. Do any of your customers require you to have product recall insurance in place?

    Whether it is retailers, customers or restaurants, there is a rising demand for companies like yours to maintain specific limits of liability for product recall.

    Failure to purchase coverage could lead to customers cancelling contracts impacting both your current and long-term sales.

    A good policy offers third-party recall costs as standard, as well as options to include customer loss of sales and other third-party legal damages, and retailers’ costs.

  5. Did you know the biggest financial impact of a recall is not the recall costs themselves?

    Recall costs, both first and third-party, are a small percentage of the average loss.

    CFC’s policy offers rectification costs to re-manufacture the products, clean down and repair the production lines, and re-design the manufacturing process.

    CFC also pay to rehabilitate the damaged brand, and cover loss of sales as a result of the issue. Many liability policies offer some ‘recall’ coverage, but this is largely first-party and only covers the recall costs themselves, which are a minor part of the loss.

  6. Do you make any specialist allergen free or vegetarian/vegan products?

    In the last 10 years there has been an increased demand for more specialist products on supermarket shelves, whether they be allergen-free or

    Allergen prevalence has increased in recent years, and regulators have been taking a tough stance in this space. A good product recall insurance policy will provide cover for allergen mishaps, including mislabelling incidents, providing peace of mind should the worst happen.

    There has also been a surge in demand for vegetarian and vegan products, however traditional bodily injury requirements in product recall could leave your business exposed in the event of an animal by-product contamination event. Some policies offer animal by-product endorsements which enhance cover in line with your own product offering.

Find out more about CFC's product recall insurance policy or contact the team.