In today’s global marketplace, the risk of product recall has never been greater.
Increasing regulatory scrutiny, pressured margins, complex supply chains and changing technology can lead to an increase in the occurrence and severity of product recalls.
Some product defect risk can be mitigated using technology during production, but errors can affect even the most prestigious, global product manufacturers and brands.
Crisis planning and high-standard quality controls are key to mitigating the risk of product recall.
Insurance cannot replace effective business governance, but contaminated products insurance can support and complement an effective risk management strategy by minimising the financial repercussions of a product crisis and enabling brand recovery.
How contaminated products insurance can help you
Contaminated products insurance can help a company to protect:
Shareholder value
Product recalls can have a significant effect on a company’s balance sheet, causing a cash shortage that can eliminate profit.
We’ll work with you to make sure that product recall protection is embedded in your wider risk management strategy so that you meet your fiduciary duty to protect shareholder value.
Brand and reputation
When risk management systems and controls do fail, what matters is how you respond and manage the event.
We’ll help you ensure your investment in risk transfer includes any crisis support you may need to respond to crises, protect and rehabilitate your brand.
Costs expenditure
Whether incurred by your company or a third party such as a direct customer. The costs to cover labour, transportation and disposal due to a product recall can be expensive. A product recall policy would typically cover these types of costs.
What can be covered?
Government recall/shutdown
Covers government-mandated recall and/or government shutdown of a manufacturing or processing facility.
Contamination, whether actual or threatened
Perils can include accidental contamination, wilful but not malicious, and/or malicious product tamper, product extortion and adverse publicity.
Packaging defect
Risks associated with errors in the design, manufacture, production or processing of packaging material.
Key coverage typically available under a contaminated products insurance policy
Recall expenses
| Coverage | Contaminated products insurance |
|---|---|
| Recall costs | ✔ |
| Physical/chemical analysis of product to establish cover | ✔ |
| Inspection costs | ✔ |
| Destruction costs | ✔ |
| Product replacement costs | ✔ |
| Slotting and re-slotting fees | ✔ |
| Customer loss of profit | ✔ |
Rehabilitation of brand
| Coverage | Contaminated products insurance |
|---|---|
| Public relations assistance | ✔ |
| Promotional offers | ✔ |
| Sales and marketing expenses | ✔ |
| Point of sales notices | ✔ |
| Advertising costs | ✔ |
Business interruption
| Coverage | Contaminated products insurance |
|---|---|
| Overheads including wages/salaries and depreciation of plant and machinery | ✔ |
| Clean down and repair of machinery or plant | ✔ |
| Subcontracting of manufacturing | ✔ |
| All affected products included | ✔ |
Consultancy advice
| Coverage | Contaminated products insurance |
|---|---|
| Crisis consultancy with no deductible | ✔ |
Third party liability
| Coverage | Contaminated products insurance |
|---|---|
| Resulting from product liability litigation | ✖ |
Triggers
| Coverage | Contaminated products insurance |
|---|---|
| Cover for product that 'would' cause bodily injury or damage | ✔ |
| Recall ordered by government authority | ✔ |
| Cover for alleged safety issues (adverse/negative media) | ✔ |
*The cover available will depend on each clients individual circumstances and availability in the market at the time of placement. Cover will be subject to the agreed policies terms and conditions.
Case study
Specialist cancer drug contaminated
An international pharmaceutical manufacturer with annual sales of $90 million, discovered contamination of an active ingredient in one of their best-selling products, a specialist cancer drug.
They issued notification to the relevant authorities and were ultimately forced to recall and destroy several lots of the product.
The direct costs suffered by the producer were $10 million and included; contractual penalties from retailers, PR and communication costs, the cost of recall, refund and destruction.
They also lost over $20 million in gross profit after six months of production was destroyed due to the contamination.
This resulted in the manufacturer having to use a significant portion of its reserve capital to survive, causing it’s share value and dividend payments to fall significantly.
Pharmaceutical contaminated products insurance ensures manufacturers balance sheet is protected from events like these. Third party expenses such as customer loss of profit and contractual penalties can be covered, whilst the direct expenses an insured may suffer are also indemnified.
Critically, contaminated products insurance can provide business interruption and brand rehabilitation costs, which allows an insured to respond to a crisis in the most appropriate way to regain their market share quickly and minimising the effect of a contamination event.
*All names, characters, and incidents portrayed in the case study above are fictitious. No identification with actual persons (living or deceased), places, buildings, companies, entities or products is intended or should be inferred.
For smarter ways to managing your product recall risk exposures, please get in touch with our specialists listed at the top of this page.
Disclaimer
WTW offers insurance-related services through its appropriately licensed and authorised companies in each country in WTW operates. For further authorisation and regulatory details about our WTW legal entities, operating in your country, please refer to our WTW website. It is a regulatory requirement for us to consider our local licensing requirements.
