General Liability insurance is a third-party coverage, which typically does not provide coverage for product recall events. Product recall insurance is a first party coverage protecting the insured through reimbursement of financial loss and expenses (which are typically excluded on a general liability policy). Additionally, product recall policies do not require the insured’s product to have caused actual bodily injury or property damage. Knowing that the product is defective or knowing that the consumption of the product could cause injury or damage may be sufficient to trigger coverage under the policy. Reimbursement under product recall insurance includes the financial costs that can result from an insured event, thus preserving the ability of an organization to continue forward in its business. In addition to financial protections, product recall insurance provides crisis management consulting services on a pre-and post-incident basis in an effort to minimize the potential for loss, as well as mitigate the adverse impact that a recall event can have on the insured’s brand and reputation.
No organization is immune from the potential for a product recall event. Even those firms with industry leading quality assurance and risk management programs can find themselves dealing with the financial, reputational, and administrative challenges of a product recall.
We have everything under control.
When looking at causation that could trigger a recall event, the human factor is always a consideration. Mistakes in manufacturing can, and do, occur. Most often, such manufacturing errors are inadvertent. However, when such manufacturing errors do occur, the financial and reputational stability of an organization can be placed at risk.
We have a strong quality control program.
Even organizations with the most rigorous quality control programs have the potential to manufacture a defective, impaired, or adulterated product. Such events can be triggered by the simplest deviations in the routine operations of a company, as well as through vendors or other entities utilized in the supply chain.
We carefully screen our suppliers.
Critical in the risk management program of any organization is the presence of a robust prequalification process for those entities utilized in its supply chain. With the administration of such policies, even the most trusted supplier can make a mistake. The result of such an error can lead to a product recall that potentially places the balance sheet of a company in jeopardy.
We pass all governmental inspections and have certification from third-party auditors.
Recalls do not discriminate. Large companies and small companies alike have the potential to be impacted by a product recall. Small companies, however, may have limited financial resources that could absorb the costs associated with a recall event. This factor, coupled with the reputational damage that can accompany a product recall can create a scenario where a small company’s survival may rapidly become jeopardized.
Product recall insurance is too expensive.
Product recall insurance is affordable. Most companies can provide an accounting to the penny of all costs that go into their balance sheet. In considering the costs of a recall event, far fewer entities have a grasp on the potential costs of a product recall. Recall and collection of the product, accounting, and disposal, communication costs and possible brand/reputation damage are but a few of the costs that most businesses can ill-afford to absorb into their bottom line. Proportionally, product recall premiums more than offset the catastrophic impact that an uninsured recall event could generate.
Source: Chubb, “Chubb Product Recall Insurance Brochure” https://www.chubb.com website. Accessed August 22, 2021. https://www.chubb.com/content/dam/chubb-sites/chubb-com/us-en/business-insurance/product-recall/Product_Recall_Insurance_Brochure_07-21_ADA.pdf
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