Product recalls can be costly, but many businesses do not buy coverage

By Erin Ayers on April 10, 2017

From vehicles to mobile phones to nut butter, product recalls have the potential to seriously affect businesses’ bottom lines, but many organizations don’t realize the need for product recall insurance, according to Florian Beerli, senior vice president at Chubb.

“There’s a lack of education and understanding of what the coverage does cover,” Beerli said in a recent interview with Advisen. Some manufacturers may feel they have coverage for costs related to recalling and replacing products along with financial loss through their product liability coverage. This common mistake leaves businesses open to increased risk, according to Beerli.

“They underestimate the cost,” he said. “A recall can put a company out of business. It becomes a risk management tool.”

Looking at the rate of product recalls from 2010 to 2015, the overall number of recalls has declined from 427 in 2010 to 410 in 2015 with the Consumer Product Safety Commission (CPSC) and from 3,700 in 2010 to 2,789 in 2015 with the Food and Drug Administration (FDA). However, regulatory inquiries and warning letters from the FDA have increased, as have the letters of advice from the CPSC.

“You have the good years and bad, and you always have some spikes. I think 2016 is going to look similar to 2010 in that recalls have gone up again,” said Beerli.

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Erin is the managing editor of Advisen’s Front Page News. She has been covering property-casualty insurance since 2000. Previously, Erin served as editor-in-chief of The Standard, New England’s Insurance Weekly. Erin is based in Boston, Mass. Contact Erin at [email protected].