Calling All Foodies: Here's Why You Need Product Recall Insurance
Product recall insurance is critical to ensuring financial stability for all manufacturers – especially those that manufacture, process and distribute food products. It’s often assumed a general liability (GL) policy provides product recall coverage, however, this is typically not the case. Some GL policies can, in addition to the third party coverage for bodily injury or property damage, provide limited recall coverage, but this is usually for expense only. A product recall insurance policy can help defray the operational cost of a recall as well as the costs to reestablishing your company’s brand.
Product recall policies apply to recalls necessary when the policyholder’s contaminated food has caused, or is likely to cause, bodily injury or property damage. Because these policies aren’t standardized, it’s important to understand what your product recall policy should look like. The following are the primary coverages a typical product recall policy may provide:
- First-Party Coverage – for insured’s own economic loss as a result of a recall; business interruption, loss of profits, recall expenses, notification to third parties of the recall, transportation and disposal of product, cleaning equipment, overtime, laboratory analysis and rehabilitation expenses to rebuild the brand’s image.
- Third-Party Coverage – for economic loss incurred by customers.
- Government Recall Coverage – for mandatory FDA recalls.
- Adverse Publicity – most policies cover negative publicity from malicious tampering. Accidental contamination is not always covered except by endorsement.
- Product Refusal – for the cost of redistribution if the insured’s product is rejected by a customer because a competitor’s similar product has been recalled.
- Crisis Consulting – offered by carriers that helps insureds develop recall contingency plans, run mock recall programs and assist during a recall crisis. This service can be priceless to insureds involved in recalls. Carriers use different third-party crisis consulting firms. It’s important to know who the crisis consultants are and what services they provide before and after a recall event.
Because technology has improved testing procedures, the 2011 Food Safety Modernization Act (FSMA 101) has implemented stronger regulations and consumers are more informed through social media and the internet, the need for a product recall insurance policy is greater now than it’s ever been. Economic loss from a recall is usually substantial, and the food industry contains many examples of businesses that have experienced a recall and didn’t survive. Relatively speaking, the premium for a product recall policy is a worthwhile expense in protecting a company from potential financial ruin.
To learn more about the policies that may help protect your organization, chat with a member of the ‘A’ Team.
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