Product recalls require comprehensive coverage
‘Product recall’ is a phrase no business or manufacturer wants to hear, especially as they make for great media headlines – as the recent strawberry recalls showed. Being proactive and having media plans, recall strategies and appropriate insurance in place is essential if you don’t want a recall to cripple your business.
Faulty products cause serious injury to thousands of people every year, and more than 4.5 million items were recalled by suppliers in the 2017–18 financial year, according to a report by the ACCC. The report also found that at least 10 people a day are injured and require medical attention as a result of unsafe products.
Recall notifications peak in summer months, with products ranging from cars and caravans to children’s toys and prams to food, building products and hazardous chemicals. The highest represented categories of all the products the ACCC had the sole responsibility for recalling over the past financial year included outdoor and camping products, kitchenware, furniture and items for babies and kids.
Plan for the worst
What happens when your business has a product recalled? First and foremost is crisis management. This should involve as full a disclosure as possible to the public, regardless of how high profile the recall may be, in a way that protects them from any potential pain and suffering – in other words, you want to minimise harm but you also don’t want to turn a bad situation into a PR disaster.
Secondly, you’ll want good internal management structures in place to discover what happened and how to fix the problem, which may involve supply chain issues or finding new suppliers and partners.
Make sure you’re covered
Finally, and perhaps most importantly, having the right insurance policy in place will provide much-needed financial back-up and help you to get back on your feet. Every industry comes with its own set of issues, so you’ll need to know what insurance is available and how it best applies to your situation. It’s here that insurance brokers can play a vital role.
Regulation 90 of the Australian Consumer Law relates to the cost associated to product suppliers of undertaking the repair or replacement of a product, while at the same time compensating the consumer. The insurance required to repair or replace a product is often referred to as a Contaminated Product or Product Recall insurance policy.
Once you understand the types of product recalls you may face, the actual financial risk to your business and potential causes (contamination, product tampering, extortion and government recall), you can look at what the most likely risks are to your industry and personal circumstances, as well as what you can actually get covered for.
The direct costs of recalling a product are often only a fraction of the true cost to the business, but a broker should be able to walk you through everything you need to cover from business interruption to product replacement and third-party recall costs, depending on the nature of the recall.
Like all sectors covered by insurance policies, there’s no shortage of offerings. Brokers who are experts in the field should be able to guide you through a potential minefield regarding the scope of your coverage, changes to legislation (often brought about by technology) and how to plug any potential holes in your exposure.
Additionally, a broker with experience in this area should be able to guide you through your responsibilities regarding the handling of claims in the event of a recall. They should also be able to advise you on a good mitigation plan at the time of taking out the policy. This will help ensure harm minimisation, clearly identify who you need to compensate and help mediate against future incidents.