Avoiding a Product Recall

Posted by Michelle Landver, CIC on June 4, 2018 at 10:00 AM

Recalling a product is a situation that no company ever wants to be involved in. Despite the extreme unpleasantness associated with them, we hear about product recalls involving everything from contaminated food to unsafe furniture on a daily basis.

In the industries of consumer products, food services, and beyond, building a product recall risk management strategy involves several critical components. According to Stericycle Expert Solutions, the first lines of defense to protect your company are prevention and preparedness[1]:

  • Invest in automated technology. Utilizing automated technology can reduce the chances of human error and can ensure perishable goods are kept at the right temperature at all times.
  • Collect employee feedback. Creating an environment which encourages employees to notify management of potential issues right away will give your company a better handle on quality control.
  • Conduct a “mock recall.” A mock recall can help expose gaps in recall execution or identify weaknesses in supply chain traceability of ingredients or components.
  • Use regulatory bodies as a resource. Opening a line of communication can help your business understand expectations and procedures better. You may also benefit from maintaining a relationship if an issue that might trigger a recall arises.

product recallEven with the best prevention and preparedness strategies in place, the chances of a product recall still exist. Here are four reasons why your company should strongly consider purchasing a product recall insurance policy to protect your balance sheet:

  • Recalls occur more often than you think. The U.S. Consumer Product and Safety Commission (CPSC) and the Food and Drug Administration (FDA) are just two of the regulatory bodies tasked with recalling products deemed to pose a potential health or safety risk to the public.
    • More than 4,200 product recalls were issued by US federal agencies in 2015 and trends are rising.[2]
  • Governmental oversight is more present than ever. Between the Consumer Product Safety Improvement Act of 2008,the FDA’s Food Safety Modernization Act of 2011, and new EU regulations, laws are becoming stricter and compliance continues to be a challenge for businesses.
    • 47% of food recalled in the US in 2016 was because of microbiological contamination.
    • 50% of surveyed food manufacturers spent more than $9 million when a product was recalled.
    • Some of the top product groups commonly recalled are food, electronics, children’s products, clothing, furniture, and appliances.
  • The high costs involved in a recall can add up. In many cases, the product in question must be destroyed, disposed of, and replaced. Additional expenses, such as media relations, legal/government affairs professionals, and recall auditors are often required.
    • There were over $31 million in civil penalties by CPSC in 2015 and trends are rising.
    • Ernst & Young surveyed companies that endured a recall in the past 5 years and 77% of companies surveyed estimated the financial impact to be up to $30 million. Earlier studies indicated the average cost to be at $540,000 (more than double the average settlement in a product liability lawsuit).
  • All companies with products on the market are at risk. Companies large and small are susceptible to product recalls, which can have a significant impact on their bottom line.

Even with a robust preparedness and prevention program in place, there is always the risk that a recall may be triggered. Just as product liability insurance is vital to protect against third-party losses from bodily injury or property damage caused by a defective or contaminated product, the same is true of product recall insurance.

Product recall insurance acts as your best line of defense by reimbursing the financial costs incurred from an insured event, allowing the business to move forward and often times avoid bankruptcy. Costs covered can include physical recall expenses, destruction of product, loss of profit, product replacement/restocking fees, extra expenses, etc.

Our proprietary program Product Recall Plus in designed to protect your balance sheet by reimbursing for financial loss after a recall. Find out more about the program and get a coverage comparison by downloading our brochure.

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To learn more about product recall insurance contact our food and beverage team or visit




[2] Manufacturing Product Recalls by the Numbers. The Hanover Insurance Group. 2017.


Topics: Property + Casualty, Manufacturing

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