Learn about product recall insurance for manufacturers. A product recall is the act of removing a defective batch or production run of products from the market when there is an imminent threat of bodily injury or property damage. It is a complex process and can be very costly.
Product Recall Insurance For Manufacturers
Product recalls occur more often than you might think. They can be extremely expensive, very time consuming, and can do extensive damage to your business.
Therefore, if you are a manufacturer, it is important that you safeguard yourself from product recalls - and product recall insurance for manufacturers will do just that.
It is important to note that product recall insurance for manufacturers provides protection in the event any of your products pose an imminent threat of bodily injury or property damage to a third party. It does not provide coverage for defective or faulty products that don't work and are not a threat.
What is Product Recall Insurance?
As the name indicates, product recall insurance for manufacturers provides coverage for any costs that are associated with a product that is recalled from the market. For example, if a child's toy is found to inflict harm on children, it may be recalled. This type of insurance would step in and provide coverage for any costs that would be associated with the recall of the product, such as legal fees, the cost of redesigning the product, and reputation management.
This type of insurance is commonly purchases by manufacturers in the food electronic, food and beverage, and electronics industry; however, manufacturers in any industry can benefit from product recall insurance. Generally, the coverage offered by this type of insurance only applies to the firm that purchases it; however, additional coverage can be bought to cover any costs that may apply to third parties.
What Does Product Recall Insurance Cover?
Though the exact coverage will vary from provider to provider, generally, a product recall insurance policy will cover costs that are associated with the following:
- Notifying customers that a product has been recalled.
- The collection of products that have been recalled.
- The use of a crisis management firm to handle reputation management for the manufacturer of a recalled product.
In more detail there are 2 parts of a product recall insurance for manufacturers policy:
Part One - First-Party Expense
- Cost of extra personnel required to conduct the recall.
- Cost to dispose of products.
- Notification of customers.
- Shipping costs.
- Warehouse and storage expense
Part Two - Third-Party Expense
- Additional cost to purchase substitute products to replace your products.
- Business Interruption (lost income and expenses) of third parties using your product.
- Cost to repair and rehabilitate third party's reputation.
- Recall expenses of the third party for the recall of any product that uses your product, including the cost to repair or replace the product.
Types Of Product Recalls
There are two main types of product recalls that can happen:
- Involuntary. The recall of a product is required by the government or some regulatory agency because the product has been found to inflict harm, cause illness, or for some other reason.
- Voluntary. A manufacturer realizes that there is a defect in a product, and it isn't likely that the defect will necessitate an involuntary recall.
Both involuntary and voluntary recalls can be covered by a product recall insurance policy. Therefore, whether are forced to recall a product that you have manufactured or you decide to recall it on your own, your product recall insurance can help to protect you from the damages that may arise.
Why You Should Purchase Product Recall Insurance?
There are several reasons why you should consider purchasing a product recall insurance policy. Here's a look at some of the biggest reasons why manufacturers should consider investing in this type of insurance coverage:
- Product recalls can be extremely expensive. The cost of notifying customers who have purchased the recalled product, collecting the product, reimbursing customers, improving the product, and the potential damage it can do to your reputation can ultimately lead to bankruptcy if you do not have insurance coverage for recalled products.
- Product recalls are more common than you may realize. Whether it's because of safety concerns or illnesses, products seem to be recalled on a daily basis. In fact, in the year 2012, almost 5,000 products were recalled by the Food and Drug Administration.
- Product safety protocols are more stringent than ever before, and they are becoming even more so on a daily basis. The Consumer Product Safety Improvement Act, which was passed in 2008, is just one example of how stringent product safety rules and regulations have become.
In other words, if you are a manufacturer or products, considering the prohibitive costs that are associated with product recalls, the damage that they can do to your reputation, and how often they occur, it is certainly within your best interest to purchase product recall insurance.
Industries That Product Recall Insurance Should Be Considered For
- Auto & Boat
- Beauty & Home Based Business
- Children's Products
- E-Cig Manufacturers & Distributors
- Gun & Firearms Industry
- Health & Fitness
- Leisure Equipment
- Medical Equipment
- Medical Marijuana Insurance
- Motorcycle Manufacturers
- Nutraceuticals & Dietary Supplements
- Sports & Recreational Equipment
How Much Does Product Recall Insurance Cost?
The cost of coverage depends on a variety of factors, including:
- The type of products you make.
- The market you manufacturer products for.
- How much of a liability your products are.
- The amount of products you make.
- The insurance company you work with.
All of these factors will impact the cost of your product recall insurance.
Product Recall Insurance For Manufacturers - The Bottom Line
We hope this article on product recall insurance for manufacturers has been informative. To find out exactly how much coverage you need and how much it will cost you, contact an insurance broker that specializes in this type of insurance. Product recall insurance carriers, food product recall insurance, product recall insurance markets, product recall insurance policy wording, product recall coverage, product recall policy, product recall insurance cost and product contamination insurance.