What is Product Recall Insurance?

It covers expenses associated with recalling a product from the market. According to our experience, many business owners get confused between General Liability Product Recall endorsement and an independent Product Recall policy.

General liability product recall endorsement does not cover the actual recalling fees, and it only covers any other recall expenses such as notice, transportation, warehousing, labor costs, investigation and inspection costs, costs of destruction or resale, ransom, other recall base fees agreed by public relations consultants or insurance companies.

Snowball effect. For many companies, this kind of scenario has a snowball effect because there are many factors to consider, and they need to be determined quickly. A quick, effective and well-managed recall is essential to minimize actual damage and reputational damage. This is why product recall insurance is often referred to as “crisis management” with specialized underwriting and claims services.

All countries oversight is stronger than ever. Regulators in developed countries are strengthening the regulation of imported products and raising standards. Many countries have legally mandated product companies to assume recall obligations, and regulators have become stricter. South Korea’s National Assembly passed laws earlier this year, forcing all manufacturers to assume the obligation to recall, dismantle, repair or dispose of defective products. China has implemented the 《Tort Liability Law》since July 1, 2010. The law may impose fines and penalties without upper limit for the behavior of knowing that the product is still defective, still storing, producing and selling, causing serious bodily harm to others.

The costs for a recall are prohibitive. Expenses of a product recall begin to mount, starting with costs associated with pulling the identified product off shelves and from transit. In many cases, products must be removed, destroyed, disposed of, and then replaced.