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What is making product recalls such a hot topic these days?
Increased regulations and public awareness, especially over social media channels, make protecting products more important than ever. Data from the Consumer Product Safety Commission shows a 108% increase in recalls in the past decade, which equals more than 3,300 recalled consumer products.
What type of risk does product recall coverage protect against?
There are a variety of reasons for a product recall, including product defects/production errors, design defects, improper storing and transporting of goods, as well as accidental or malicious contamination. It is a broad coverage that provides financial protection in the event a product has to be pulled off the retail shelf or assembly line. Common product recall policies offer first party coverage for loss of profit, rehabilitation expenses and replacement costs. Third party coverage may include the customer’s loss of profit and rehabilitation expense.
There are also additional coverage enhancements available that offer protection in case of a government recall or adverse publicity that affects the client’s reputation. The direct financial loss from a recall is often minimal in comparison to the reputational damage.
What are the common misconceptions related to product recall coverage?
Often, businesses do not think about how their product fits into the overall supply chain. For example, some manufacturers only consider their risk relative to the number of parts they sell or number of customers with whom they have relationships. But when a product is recalled, often there is one piece of the overall manufacturing process to blame. A retail broker or agent can help their client understand their risk by exploring the overall supply chain and how all levels down to the consumer could be impacted should their product fail. The risk and impact to their business is often much more than they expected.