Employees make mistakes, and while some of these errors are relatively minor, other ones can be egregious and extremely costly. Occasionally, companies are forced to carry out product recalls in order to rectify certain mistakes. Essentially, a recall is a request to return or replace a product that a manufacturer or another group has deemed defective or dangerous. According to Statista, there were 4,217 product recalls issued by federal agencies in the United States in 2015. That year, the Food and Drug Administration (FDA) also issued 2,789 recalls.
Fortunately, there is a way for businesses to protect themselves in these scenarios: product recall insurance. Here is an analysis of what this is and how it differs from other types of insurance.
What Is The Difference Between Product Liability & Product Recall Insurance?
Product recall insurance and product liability insurance are both beneficial to business owners whose companies have produced and sold defective products. However, each type of insurance covers a distinct liability.
Product recall insurance covers the cost to recall products but typically isn’t included in general liability plans and does not protect against product lawsuits. Meanwhile, product liability insurance is often included with general liability and covers product lawsuits but not recall-related costs.
Product Liability Insurance
Product liability insurance is more than a warranty or a product guarantee. It serves as a form of protection for companies that have to deal with the repercussions of a defective product that causes injury to consumers or damage to objects. Harm and damage can occur because of design flaws or marketing-related errors, as well as misuse. Product liability insurance may sometimes cover medical costs, as well as compensatory and business damages. The amount of coverage a company should purchase depends largely on the types of products the business sells and the average sales volume, among other factors.
Product Recall Insurance
There are generally two different types of product recalls:
- Voluntary recalls: a business willingly decides to recall its products, not due to a legal mandate.
- Involuntary recalls: a government regulatory group forces a business to recall one or multiple types of products.
If your company has been obligated to recall products for any reason, product recall insurance can protect you by covering all costs relating to:
- Collecting recalled products
- Disposing of harmful products
- Public relations and crisis management
The costs of conducting these processes can easily become substantial, especially for small manufacturers. Product recall insurance can help significantly protect your business in scenarios where you have to deal with defective products.
Who Should Acquire A Policy?
Small businesses may particularly benefit from product recall insurance, especially if the products they manufacture and sell are complex, such as products that require highly technical skills to make. However, any company can benefit from this type of insurance and should seek to acquire a policy.
Benefits Of Product Recall Insurance
Product recall insurance is beneficial for several reasons:
- Assist to cover costs for recalling and disposing of defective products
- Assist to cover PR-related costs
- May sometimes cover loss of profits.
Fortunately, the number of consumer product recalls in the U.S. dropped to a 16-year low in 2019 to 241, according to the Consumer Product Safety Commission. Nevertheless, it is important for your business to remain informed about the many advantages that product recall insurance brings.
Speak To An Experienced Business Insurance Agency
Reach out to the professionals at Pro Insurance Group in Elgin, Illinois for more information about product recall insurance. We have a wide range of carrier options, which means that we are able to help our clients select plans that fit both their needs and their budget.
Our insurance advisors work directly with clients and are there to guide them through every step of the process. At Pro Insurance Group, we place a large emphasis on forming deep relationships.
We know that the demand for strict product quality standards and safety regulations has increased substantially in recent years, which is part of the reason that product recalls have been so frequent across many industries (food, toys, electronics, etc.). Additionally, not every business may always have the optimal resources to perform quality control checks. Therefore, Pro Insurance Group is here to help in any way possible. Before acquiring a policy, business owners and operators should consult with a broker to ensure their company would be covered under the policy. We do not cover three specific industries: firearms, automotive, and tobacco. Call Pro Insurance Group today at (833) 619-0770 or contact us online to request a quote or to learn more about our policy options.