Takata airbags, Target Easter eggs and Toyota cars … all crippling product recalls that thrust huge manufacturers into global headlines for all the wrong reasons.
No manufacturer ever wants to face a product recall. It can be one of the most costly incidents to strike a business – but it can be covered if the company has adequate insurance. The problem is, not all manufacturers are on-board with buying coverage.
“For brokers, one of the hardest things to sell right now is the product recall aspect of manufacturers’ insurance,” said Kent Pitkin, vice president, April Canada. “We see product recalls in the news all the time and claims are coming from companies across all sectors of manufacturing, from food production to consumer goods.
Search and compare product listings for insurance against a Product Recall from specialty market providers here
“But not all manufacturers purchase product recall coverage. Instead, they often rely on small policy add-ons or extensions with low limits, which aren’t always adequate when a large claim comes in.”
There is a wide variety of insurance products in the Canadian market dealing with product recall. April Canada offers multiple options including first party, first / third party, and first / third party and expenses. These products are hugely beneficial at claim time, according to Pitkin.
“Manufacturers need to consider what a product recall will actually cost and what other implications it will have for the company,” Pitkin told
Insurance Business. “Brokers and insurers need to present more information to clients to explain appropriate limits and explain exactly how much a product recall could cost within a certain industry.
“Product recall is difficult to sell because it’s expensive. Some clients look at the high premiums and choose not to buy the coverage because they think they’re very unlikely to have a recall. But on the rare occasion they might have to make a claim and they experience the expense of a recall, that’s when they eventually purchase the product.”
Brokers need to get insureds on-board with product recall before a costly claim forces clients into making a decision, said Pitkin. This requires an education campaign and cost-benefit analysis.
“It’s all about education and the best way to educate is through examples,” Pitkin added. “Brokers need to provide cost-benefit analysis to clients or insureds to highlight the worth of product recall coverage.
“You need to be able to identify examples fitting to the client. A small tier 4 manufacturer is going to look at the huge Takata airbags recall and think ‘that’s not going to happen to me’. But that tier 4 manufacturer might produce a small part that goes into a much larger product, and if that part needs to be recalled, it could easily put the small manufacturer out of business.”
Small manufacturing companies are just as susceptible to product recall as anyone else in the market. You can’t hide behind company size or revenue when it comes to product recall, concluded Pitkin.
Related stories:
Canada slow off the blocks for beneficial product
Food and beverage product recall a sticky business without coverage
