Product Recalls: How can insurance help you bounce back?
Imagine you must recall a batch of cake mix, biscuits or another product due to a labelling error – do you know how your insurance will come into play?
Michael White, the Broker Technical Manager at Steadfast Group, explains that the insurance response could vary based on the nature of the misleading label. He states, “If there are nuts in a product when the label says it’s nut-free, this is potentially dangerous to consumers,” especially those with severe nut allergies.
In cases like this, the appropriate Product Recall insurance, also called Crisis Cover or Contaminated Products Cover, should assist in covering a substantial portion, if not all, of the associated expenses.
However, if the situation is not causing potential harm to individuals, for example, the label simply states the wrong flavour, the coverage might not apply.
Not a cheap ordeal…
The costs linked to a product recall can be massive. Identifying the affected products’ distribution points can be daunting, particularly if your products are distributed through various channels, including major supermarkets and smaller retail outlets.
Furthermore, you must consider the expenses of physically removing the contaminated items from shelves and replacing them with safe alternatives. You may even need additional staff to facilitate this process, allowing your existing workforce to concentrate on maintaining business operations.
“A recall can also be very damaging to your reputation so you may need professional help with managing the media and the messages you share with your customers”.
A comprehensive insurance policy should encompass all these aspects.
Addressing Post-Incident Scenarios
In cases where someone consumes your product and sustains an injury, Public and Products Liability Insurance may cover legal liabilities arising from subsequent claims. However, this coverage might not extend to the costs of recalling other potentially contaminated products.
“Most businesses that manufacture, import or distribute products will have Public and Products Liability Insurance,” White says.
“If you are in an occupation where Product Recall cover is not available, it may be possible to extend this cover with what’s known as a Product Recall Add On – although this may not be as broad as the cover you get with the standalone policies.”
Business owners are responsible for their imported, manufactured, sold, supplied, or distributed products. This responsibility entails potential liability for any aspect rendering products unsafe. In the worst-case scenario, the immediate financial burdens and subsequent reputation damage could jeopardise the viability of your business.
It’s important to note that product recalls are not uncommon occurrences. Food Standards Australia reported 776 recalls between 2012 and 2021 in the food sector alone. Businesses operating in particularly vulnerable sectors, like food and beverage manufacturing, might benefit from a combination of product liability and standalone recall coverage to ensure potential protection.
Our experienced insurance brokers can help you select the right coverage for your business for total peace of mind. Contact us today to learn more.