Protect your business against product recalls

Your business is responsible for any product that you import, manufacture, sell, supply or distribute. You can therefore be held liable for any defect or other condition that renders the product unsafe and results in injury, death or damage.

Generally, all businesses that manufacture or import products will have Public & Products Liability Insurance.  However the cover will generally only extend as far as bodily injury or property damage that arises from the legal liabilities of your products.  It does not extend to recall any products that may or will imminently cause bodily injury or death in the future if your products are not recalled.

Product recalls are on the rise as ever increasing consumer protection and new regulations come into play. It does not take much of a defect to fail to meet various legislation and Australian Standards.

When a recall is declared by a government agency or a retailer, the manufacturer has to pay the cost of taking the product off the showroom floor or from purchasers/consumers and bringing it back to their premises for fixing, modifying or disposal.  In the case of a furniture recall, the faulty products are often large and bulky and could cost from $250 to $1000 per store to recall. Often the most cost effective solutions for the supplier/manufacturer is disposal. In addition there are costs incurred resupplying new products to retailers.

Product Recall Insurance can cover the costs associated with recalling a product from the market due to a defect, a malicious product tamper and/or product extortion.  The policy can extend to cover business interruption and costs associated with crisis management and public relations consultants to guide Insured's through the first critical weeks of a recall. 

Example:

A bunk bed manufacturer has identified a defect in one of its products that presents a safety risk and non-compliance with Australian Standards, and is required to recall the product. The recall presents a number of challenges to the manufacturer:

• The product has been distributed to more than 100 retailers nationally. All beds in these stores will need to be removed and replaced with non-faulty products.
• The product has been on sale in retail stores for more than 12 months and sold more than 1000 units. All end purchasers need to be traced, products returned and customers compensated.
•  Several businesses have purchased the bunk beds and will potentially incur loss of business income as a result of the recall, which the manufacturer is liable for.
• Any future injuries that occur due to the defective product are the manufacturer’s liability.
• The manufacturer faces increases in its future Public and Products Liability Insurance premiums.  If a number of injuries occur it could dramatically increase the excess per claim and overall cost to manufacturer.
• The manufacturer’s reputation is at stake and could result in loss of trust and customer loyalty. To mitigate this they have hired a professional PR firm to manage the messaging.

Thankfully, the manufacturer has Product Recall Insurance, which not only covers the financial impact of the recall, but enables the process to be executed in the most efficient and effective way possible to minimise damage to its brand and customer experience.

For any further information about Products Liability Insurance and Product Recall Insurance, please contact AB Phillips on 1300 242 136 or email info@abphillips.com.au