A product recall is a request by a manufacturer to suppliers to return a product that is defective or has an unidentified risk of injury or illness that was not originally realized by the manufacturer. A recall allows the manufacturer to make adjustments to the product(s) to ensure optimal safety and product effectiveness. Product recalls are expensive and can cripple a business without proper insurance. Product recall insurance provides protection from the high costs associated with product recalls.
What Is Product Recall Insurance?
Product recall insurance covers the majority of costs associated with product recalls. A product recall can be voluntary or involuntary. A voluntary recall refers to one that is issued by the manufacturer and is not mandated by the government or any other entity. An involuntary recall refers to a recall that the manufacturer must abide by to avoid legal issues. Common costs associated with product recalls include but are not limited to:
- Notifying the public
- Return shipment costs
- Product disposal costs
Product recall insurance covers the majority of product types, except for automotive, arms (i.e. weapons) and tobacco products. Food and drug products are also included in product recall insurance, along with technology products, toys and more.
If you are unsure if product recall insurance is appropriate, speak with a professional to determine your needs. Insurance coverage is typically tailored specifically for the policyholder, based on their specific risks, financial obligations and preference for coverage.
Who Needs Product Recall Insurance?
Since most manufacturers rely upon the sales of products either partially or as the primary source of their revenue, product recall insurance is essential for most businesses. However, some of the most notable business types benefitting from product recall insurance include:
- Food manufacturers
- Beverage manufacturers
- Toy Manufacturers
- Electronic manufacturers
Food and beverage manufacturers often require product recall insurance as they may have their products recalled by the FDA (and other organizations) if they are deemed a health or safety risk to consumers. Toy manufacturers do not have the same level of safety risk, in general, but they are at risk of faulty or defective products that could require a recall. Electronic manufacturers could have a recall due to safety concerns or due to ineffective products. Businesses that do not sell any products and rely solely on the sale of services instead may not require product recall insurance.
Reasons To Get Product Recall Insurance
Every business should assess their own risks as it relates to product recalls. Most notably, product recall insurance is necessary as a way to deal with the inevitability of product recalls, the need to fulfill certain government requirements and to mitigate risk by reducing the overall financial impact a product recall would have on your business.
Product Recalls Happen Almost Every Year
The Food and Drug Administration (FDA) alone recalls an average of more than 4,500 recalls each year. This, of course, does not include the countless number of product recalls in other industries. For many manufacturers, product recalls are inevitable.
While safety measures can decrease the risk, operating with a mindset of preparedness for a product recall is a great way to provide financial certainty and stability for your business.
Government Oversight Is Stronger Than Ever
The Consumer Product Safety Improvement Act of 2008 and the Food Safety Modernization Act of 2011 have led to an increase in product recalls over the past decade. While these acts serve an important purpose, they do put businesses at an increased risk. Failing to comply with these government oversights or not passing a product inspection could be a serious (and expensive) problem. Product recall insurance protects you in these vulnerable moments.
The Cost For Recalls Are High
Products that are recalled will often need serious modification. In most cases, it is best to dispose of the recalled products and replace them entirely. This process is time consuming and expensive for manufacturers. Without insurance, many businesses are at risk of bankruptcy or assuming serious debt or substantial loss of profits. Product recall insurance ensures you are covered for the costs associated with a product recall, including the cost to replace the products in many instances.
Get Product Recall Insurance Today
At Pro Insurance Group, we offer product recall insurance with years of experience in the industry. Contact us by phone at 833.619.0770 or message today for more information and to find out how a product recall insurance policy will benefit your business. Our friendly and professional agents are glad to answer your questions, address your concerns and get you started with the product recall insurance policy that meets your business’s specific needs, minimizing risk and loss of profits.