Risk Management

Managing Risks of Product Recall

 The impact from a product recall, if not managed correctly, can emerge rapidly and threaten your business, employees or customers. Contamination in products continues to create havoc for consumers and business around the globe. Whether the contamination is accidental or the result of a product tampering there is an insurance solution available which protects all aspects of the food, beverage, cosmetics and pharmaceutical industries.


Why buy recall insurance?

Product recalls are not the most common of claims but the financial impact can be severe. Regardless of how good a client's procedures and testing may be, all it takes in many instances is for one employee to have a lapse in concentration and suddenly an incident has occurred. This one mistake can often lead to substantial loss.

Not all incidents are unintentional or accidental. Recalls can also occur because of malicious tampering. There are many high profile cases of products being tampered with on the shelves. However,  of even more concern for companies should be "internal tamper" on the production line. These tampers do not always receive the same publicity but can have an extreme impact on a company. In most of these cases the procedures and controls a client has in place will have little or no impact on the likelihood of a tamper, because it is wilful action rather than accident which causes it.

Below are some actual examples of the potential financial impact of an incident:

Pre-prepared meals                                                                          Client’s turnover             $12m                                                                      Size of product recall claim    A$1.4m

Beverage                                                                                           Client’s turnover                    A$ 9m                                                            Size of product recall claim      A$ 1m

Snack Food                                                                                       Client’s turnover                   A$ 6m                                                             Size of product recall claim    A$ 250k

Dessert                                                                                              Client’s turnover                   A$ .5m                                                              Size of product recall claim    A$ 100k


What is Contaminated Products Insurance?


In the event of an Accidental Contamination, Malicious Product Tamper or Product Extortion a Contaminated Products Insurance policy can provide financial protection to businesses in the food, beverage, pharmaceutical and cosmetic industries including:


• Business Interruption

• Replacement Costs

• Recall Costs

• Third Party Recall Costs

• Consultants & Advisor Costs

• Rehabilitation Expenses

• Extortion Costs

One of the biggest misconceptions is that product recall coverage is available under a standard public and products liability policy. In most such policies product recall is excluded. If some limited cover is provided via recall expense cover, the coverage limit provided is normally very small compared to the overall exposure.

As public and products liability policies do not cover the client’s own losses, there is no cover for replacement of the product, additional expenses to re-establish sales or loss of profit as a result of an Insured Event.

What assistance can I get if I have an incident?

One of the most important benefits under a contaminated products insurance policy is the expert specialist crisis response consultants payable under the Consultants and Advisor Costs section of the wording. The consultants can help the client respond swiftly and effectively to a product contamination incident, as well as planning for and managing the risks associated with a potential incident.

The expert consultants available include food technologists, malicious product tamper experts, crisis management experts and public relations assistants.


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