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Product recall - are you ready?

By Gloucestershire Echo  |  Posted: October 09, 2012

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ON average in the UK, there are four product recalls every week. Remember the high-profile recalls surrounding Cadburys, Toyota and Perrier Water? Product contamination and ultimately recall risks are becoming prevalent risks for many industries regardless of size and needless to say, the effects of a recall can be lengthy and expensive.

Whether you are a manufacturer, importer or supplier of goods, all such companies have to meet the EU General Product Safety Directive which brings responsibility for costs associated with product recall. Whilst a business is likely to have product liability insurance, this policy will not extend to include costs incurred after a product recall. Recall risks are usually more associated with food, drink, toy, pharmaceuticals, cosmetics and automotive industries, but all suppliers of consumer goods have the same risks to consider.

The insurance market has evolved to provide a range of covers arising from accidental contamination, malicious tampering and extortion with automatic inclusion of cover for the policyholders loss of gross profit, and rehabilitation costs following contamination. The trigger on all policies is the risk of injury or sickness following use or consumption. At the time of a recall, managing public and customer relations is vital and insurers will usually include access to crisis management experts and loss prevention services.

The policies are written on a first party basis in that they provide cover for the policyholder only. Be aware that under contractual agreements between manufacturers and customers, particularly with the supermarkets, the supplier can be at risk for third party financial losses where their customer suffers from a loss of sales due to a recall. This customer loss of profits risk can often be included under a contaminated products policy or purchase separately through a legal liability policy covering product guarantee, recall and financial loss risks.

The recall process is lengthy comprising inspection of goods, announcements of recall, managing of reputation, resources for overtime for staff and customer helplines, retrieval of goods, disposal of goods, amongst other factors. An appropriate product recall insurance policy will ease the burden.

■ For further information on product recall risks, please contact Ray Thomas, ACII, regional director, Kingsbridge Risk Solutions, 01386 725900 or email ray.thomas@kibl.co.uk.

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  • julianw  |  October 09 2012, 12:30PM

    A good article which highlights the risks. I think insurance is a good move particularly when major supermarket retailers will not just bill you for loss of sales but also for admin and logistics costs - ie. the cost of removing product from the shelves. At a company I used to work for we were billed £50,000+ by a major retailer and that was just for a minor recall. That said an insurance policy is no substitute for having a robust recall procedure in place at the outset with all parties (internal and external) fully aligned on the contents. The article says "insurers will usually include access to crisis management experts". These crisis management experts need to be retained permanently in the event of a recall. Ie. Not just contacted only after a recall has been announced. At my last company we retained the services of a major PR organisation who were skilled in crisis management. I involved them in the creation of the recall procedure and they also organised and managed a test day for us where we simulated a real product recall. To summarise I think insurance should complement a recall procedure but should not be used as a substitute for having a robust procedure in place.