A liability insurance program will not respond to a defect in the product, as the liability insurance responds to resulting injury or damage.
The consequence of this for a client is that the cost, administration and brand damage triggered by the recall can often be greater than the injury / damage.
Regulation 90 of the Australian Consumer Law relates to the cost associated to the supplier of the product to undertake the repair, replacement, re-provide the service / part and recompense the consumer. This cost is generally a self insured cost on the client.
Insurance can respond to the event (the defect) that triggers the need to repair / replace, which is often referred to as a Contaminated Product or Product Recall insurance policy.
Do you need Product Recall / Crisis Management?
A key financial risk is the exposure to a product recall, on the basis of a contamination, mislabelling, or malicious activity. Insurance programs can be created to provide protection against Accidental Contamination, Malicious Product Tamper or Product Extortion and we recommend that you consider this area of risk.
What are the Potential Insured Events?
- Accidental Contamination
- Malicious Product Tampering
- Product Extortion
- Government Recall
- Alleged Contamination
- Intentionally Impaired Ingredient
What losses can be covered?
- Business Interruption
- Replacement Costs
- Recall Costs
- Third Party Recall Costs
- Consultants & Advisor Costs
- Rehabilitation Expenses
- Extortion Costs
The following case example is based on a real Product Recall event.
A manufacturer of chilled foods was contacted by their retailer customer, who advised several customer complaints had been reported of possible contamination of the dessert products. As the manufacturer was a small company with a turnover of only several million dollars, the contamination incident had the potential to cause a large loss to its bottom line.
Once a contamination was identified, it was agreed that the products needed to be withdrawn from sale as they posed a threat of injury if consumed.
The following kinds and magnitudes of losses are typical of this type of incident:
- Replacement Cost: A$ 53,500
- Recall Cost: A$ 40,000
- Loss of Profit: A$ 10,000
- Transport Cost: A$ 5,000
The cost of a crisis Management consultant can also be considered to provide expect advice right from the start, as well as helping to protect your brand and business reputation.