It’s what keeps CEO’s and 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. Affecting an estimated 32 million vehicles around the world, the current Takata air bag recall is also an example of how one supplier’s product recall can have a domino effect on eleven leading automakers.
This massive recall includes an estimated 1.41 million Canadian autos reports The Globe and Mail. “Millions of Takata air bag inflators can explode with too much force, spewing metal shrapnel into drivers or passengers. Six people have been killed and more than 100 injured due to the problem.” 1
Related Matters: Transport Canada: Takata recalls in Canada
Insurance Business notes that “five class action lawsuits have already been issued in Canada alleging that the Japanese parts maker “knew or ought to have known” about the defect and informed the public accordingly. Windsor-based law firm Sutts, Strosberg LLP is seeking $3.25 billion in damages, which includes the inconvenience of obtaining repairs and the depreciated value of vehicles.” 2
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, it’s important that your organization is prepared for potential exposures before things go wrong.
|Product Recall Coverage – The Key Components
In the event that your product is faulty, tampered with and/or contaminated, your loss may be protected with product recall insurance. Each type of product recall coverage is designed to isolate a component of your organization’s first-party product exposure. When examining product recall coverage, be on the outlook for:
- 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.” 3
Expert Advice For Product Recall Coverage
The additional costs of a recall are wide-ranging. 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 for this type of work with adequate product recall coverage.
The product recall insurance marketplace is highly specialized. ALIGNED Insurance can help secure the coverage you need and collaborate with you to develop a product recall insurance program that meets your needs. Talk to one of our advocates today about how we can help you secure the best products, services and solutions for your business.