Romaine lettuce E. coli scare latest case driving product recall insurance interest

By Erin Ayers on May 14, 2018

Romaine lettuce, airbags, mobile phone batteries – these are just a few of the prominent product recalls that have occurred in recent years, driving businesses to become more prepared for the financial and reputational risks associated with defective, mislabeled, or otherwise problematic products.

Heightened attention from consumer groups and federal regulators mean information about product recalls spreads more quickly and authorities become involved in detecting problems sooner. The spike in product recalls also means that more businesses, particularly in the food and beverage industry, are looking for insurance solutions.

“Awareness has increased and it’s driving companies to actually prepare more for the financial consequences of a recall,” said Marcos Garcia Norris, crisis management regional practice group leader at Allianz Global Corporate & Specialty. “Recall insurance is no longer seen as a luxury.”

Even just a few years ago, only large multinational companies would see product recall insurance as a must. Now, most food and beverage businesses buy it, either as a standalone policy or extension of their general liability coverage, according to Norris. With the costs of recalls ranging from fines and penalties, lost sales, reputational harm, lost product, legal fees, and notification costs, organizations have come to view insurance as a necessary element of managing crisis response.

According to a recent Allianz report, average costs of recalls across 12 industry sectors can be more than $1.65 million, with average costs for the two most heavily affected industries (auto and food/beverage) coming in at over $14.5 million and $9.2 million, respectively.

Individual events can far surpass the average costs and affect multiple businesses using similar supply chains – the 2015 Takata airbag recall has reached costs over $25 billion worldwide. Samsung’s recall of Galaxy Note7 phones with overheating and exploding batteries is currently estimated at $5 billion.

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eayers@advisen.com'

Erin is an editor at Advisen. She has 15 years of journalism experience. Prior to Advisen, Erin covered property-casualty insurance for 13 years as editor-in-chief of The Standard, New England’s Insurance Weekly. Erin is based in Boston, Mass. Contact Erin at eayers@advisen.com.