Product recall cover is becoming more important outside of its traditional manufacturing market, an expert has said, as risks continue to rise.
Karina Rodriguez Diaz, crisis management and cyber underwriting manager at
HDI Global, said that while manufacturing companies were largely the only buyers of product recall cover in the past, that is now changing.
“Due to the current economic environment we’re seeing a more active pursuit of loss recovering through the entire supply chain,” Rodriguez Diaz told Insurance Business. “As such, it is important for companies to understand that they might not be involved in the actual recall process but may still get affected by the losses once their customer subrogates against them.”
Rodriguez Diaz said that while product recall cover has traditionally been focused on the food and beverage area, the consumer durables industry is “seeing some growth.”
“Not limiting the recall portfolio to food and beverage will also assist insurance companies to have a more balanced and sustainable recall book,” Rodriguez Diaz continued.
She added that one of the biggest mistakes companies make is failing to understand their exposure properly - and brokers can play a role in ensuring risks are better understood.
“Companies understand their business activities but sometimes have a lack of understanding of the potential financial impact of a product contamination,” Rodriguez Diaz continued. “Additionally, companies often only consider the recall costs associated with an incident and don’t factor in other losses such as their own business interruption, rehabilitation expenses, fines and penalties, third party losses and crisis consultants’ costs, etc.”
If the worst were to happen from a product recall perspective, Rodriguez Diaz said that working closely with the client and response consultant will be vital in ensuring a successful outcome.
“The end loss, as a result of a crisis, is largely determined by how the situation is managed from the outset,” Rodriguez Diaz said. “The response consultants assist companies from the discovery of the event until they reach conclusion. They not only ensure that the organisation follows a correct recall procedure but also advise the client on how to mitigate the loss and prevent brand and reputational damage.”
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