Product recalls are often in the news with cases of Hepatitis A allegedly linked to the consumption of frozen berries, and blackmailers threatening to poison NZ milk. The milk poisoning threat saw the NZ dollar fall by more than 1 percent, forcing the NZ stock exchange to suspend all trading on dairy options and companies.
Whether the threats and allegations above were real or not, such instances have led to hundreds of thousands of dollars worth of product being removed from retailers’ shelves.
These situations are a timely reminder for businesses in the manufacturing, processing and goods distribution industry to ensure their insurance program provides adequate cover for product recalls.
No matter how good your management controls are, most food and beverage manufacturing businesses are at risk of a product recall.
Between 1 January 2008 and 31 December 2017, Food Standards Australia and New Zealand (FSANZ) were notified of 626 recalls. Over the last 10 years, the average number of recalls in the food industry have been sitting at 63 per year (i).
Of course, recalls are not just isolated to food and beverage organisations. Other vulnerable industries include electronic products and vehicle manufacturers.
If your business sells products to consumers, you need to be aware of and understand this exposure, taking suitable action to reduce the risk it presents to your business.
The costs of a product recall
Consumer-facing businesses face an untold number of risks at every point in the supply chain, with product contamination and recall one of the most prominent.
Without the right risk management strategies, a product recall can have devastating financial effects on a business. This includes fines and penalties imposed by retailers, physical removal of the product from shelves and safely destroying it.
In addition to the initial costs involved with a product recall, there are also non-financial costs which can be just as devastating for your balance sheet down the track. Reputational damage can have serious flow-on effects following a product recall. It can take years for an organisation to regain public trust and reach prior sales after a recall – even if you weren’t deemed at fault.
Surviving a product recall with quality insurance
High-risk industries like food manufacturing are strictly regulated to avoid mishaps. Nonetheless, recalls do happen. This makes it essential to have the right insurance in place, limiting the damage a recall can do to your business.
Product Recall Liability Insurance is designed to cover:
- The cost of withdrawing products from shelves
- The consequential loss of income, profits or revenue resulting from the product recall
- Replacing the recalled product on shelves with ones that are deemed safe
- The costs associated with safe disposal of the recalled product
- Expert advice and assistance on managing brand reputation in the public domain
In general, these policy features are not covered by a traditional Business Insurance or Public Liability policy.
Best practice – risk mitigation
In addition to having the right Product Recall Insurance cover, there are additional steps you can take as a business to ensure you are prepared – primarily having a robust Risk and Crisis Management Plan.
Recalling a product is generally a crisis situation that needs swift and appropriate action. The public’s perception of your organisation will be coloured by the way you handle the crisis and recover, after the immediate recall emergency has passed.
Preparing a crisis management plan is an opportunity to identify the scope of your organisation’s risks, and the immediate steps to take should a recall be necessary. This process can help minimise the impact and cost of a product recall, the reputational damage to your brand, and most importantly, the impact on your consumers.
Product recalls can occur at any time, even with all the right safety measures in place. A sound crisis management plan, and suitable Product Recall Liability Insurance policy, will assist in:
- Reducing the adverse impact of a product recall,
- Ensuring you’re back to ‘business as usual’ as fast as possible, and
- Placing you in the best possible position to preserve the reputation your organisation has worked so hard to achieve.
For a tailored Product Recall Liability policy that aligns to protect your risk exposures, please contact our specialist Commercial Insurance team:
P | 1300 424 627
E | info@whitbread.com.au.
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 Licence Number: 229092 trading as Whitbread Insurance Brokers for further information or refer to our website.
