Product recalls can bankrupt companies without cover
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COMPANIES, particularly those that make consumables, are warming up to the need for comprehensive cover as potential recall of products from the shelves could send a business into serious financial distress, Catia Folgore, a senior underwriter at specialist niche insurer iTOO Special Risks, said.
Folgore said the changing operating environment, including the introduction of Consumer Protection Act, had increased the need for better quality products as well as cover for product defects.
“In a sense, the threshold to trigger a product recall from the shelves has come down significantly, as the cost of a faulty product can easily shut down a business, given the loss of revenue and brand reputation,” said Folgore.
A single product recall could cost a business north of R500 million and without adequate cover, this was the kind of figure that could send a business to bankruptcy.
A product recall insurance policy would typically cover loss of revenue due to business disruption, liability to affected stakeholders, the entire recall process as well as costs to the retailer for keeping empty shelves.
Recall policies are triggered by the detection of a health risk and potential bodily harm posed by the continued distribution of a product.
“In some instances, government departments or their agencies can mandate a product recall in the interest of public health and safety,” said Folgore.
Folgore said the product recalls reported in the media represented a fraction of the total product recalls that happened.
“The majority of product recalls happen under the radar, but we know that businesses are beginning to take the need for product recall insurance seriously as our numbers show a considerable increase in requests to underwrite such policies,” said Folgore.
BUSINESS REPORT ONLINE