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Product Recall Insurance | Protecting First-Party Product Exposures
It’s what keeps business leaders up at night. A harmful defect in just one product can threaten the health and safety of the general public and has the potential to bankrupt a company. Faulty products cause thousands of deaths each year, countless illnesses as well as costly lawsuits. Be it vehicle air bags, pharmaceuticals or food products, a defective component or product can quickly become headline news. If you are in the business of manufacturing any consumer goods, product recall insurance can help protect your organization for potential exposures.
Key Components of Product Recall Coverage
In the event that your product is faulty, tampered with and/or contaminated, your loss may be protected with product recall insurance. Product recall coverages are designed to isolate a component of your organization’s first-party product exposure.
- Recall expense. This out-of-pocket expense covers a large-scale product withdrawal. It includes costs such as extra temporary employees, overtime, public safety messages, special testing and handling, destruction and disposal costs and crisis management and/or PR consulting fees.
- Replacement cost. As the name implies, this is the cost of replacing any product that had to be destroyed. This includes the cost of materials, labour and overhead directly associated with producing the product.
- Lost profits. Product recall insurance indemnifies the insured for profits that would have been earned on the withdrawn products and also for profits that would have been earned on future product sales but which were not earned because of resultant future sales declines. This is usually limited to a specified time period.
- Brand rehabilitation expense. Most product recall insurance policies will also indemnify the insured for necessary rehabilitation of the recalled product’s consumer image. The International Risk Management Institute (IRMI) notes that “this includes costs like extra advertising, extra expense to rush a new product to market and special promotions to rebuild public trust in the manufacturer and its products.” 1
Protect Your Bottom Line With Product Recall Insurance
Revenue losses, the cost of withdrawing a product from market, disposal, testing, overtime wages as well as crisis management quickly add up. Despite the potential for extraordinary bottom-line costs, many organizations fail to prepare with adequate product recall coverage.
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