Remember when Maggi had to recall its products from across India?

Ever wondered about the massive financial losses such an event causes?

📌 Fact:

Nestlé suffered a ₹451.6 crore loss due to the Maggi recall, along with long-term damage to its brand and sales.

👉 Read more.

💡 How can businesses protect themselves from such risks?

By using Product Recall Insurance!

To learn more, we spoke with Neha Yardi, Executive VP at Howden India, an expert in Liability & Specialty Risks.

What is Product Recall Insurance?

Product Recall Insurance is a loss policy that covers the financial impact of a company recalling defective or contaminated products from the market.

📌 When does a company need to recall products?

✅ The product is defective or contaminated.

✅ It has caused bodily injury or property damage.

✅ A regulator orders a recall for safety concerns.

💡 A timely recall can prevent lawsuits and reputational damage.

📌 Example:

If a pharmaceutical company discovers impurities in a drug, they must recall all affected batches.

Types of Insurance Policies – Loss vs. Liability

1. Loss Policy (Crisis Insurance Policy)

Covers direct financial losses suffered by a company.

📌 Examples:

• Crime Insurance: Covers financial losses from fraud or employee dishonesty.

• Kidnap & Ransom Insurance: Covers ransom payments in kidnapping situations.

• Product Recall Insurance: Covers financial losses from product recalls.

2. Liability Policy

Covers third-party financial losses due to a company’s errors.

📌 Example:

• A manufacturer’s defective product causes injury → The company pays compensation to the injured party.

💡 Product Recall Insurance is a Loss Policy, while Product Liability Insurance is a Liability Policy.

What Costs Does Product Recall Insurance Cover?

📌 Typical recall costs include:

✅ Shipping costs for retrieving defective products.

✅ Warehousing & storage of recalled items.

✅ Hiring additional manpower for the recall process.

✅ Public relations & advertising costs for damage control.

✅ Response consultants’ fees to handle recall logistics.

💡 Insurers often provide specialized response consultants to assist with recalls.

Product Recall vs. Product Liability Insurance

🚨 What happens if a recalled product has already harmed customers?

📌 Product Liability Insurance covers:

✅ Legal defense costs if a consumer sues for injury.

✅ Compensation awarded by courts to affected individuals.

📌 Product Recall Insurance covers:

✅ Preventing further harm by removing defective products from the market.

💡 Using Product Recall Insurance in time can prevent expensive Product Liability claims.

Types of Product Recall Insurance Policies

🚀 1. Contaminated Products Insurance (CPI)

For industries dealing with ingestible or applied products:

✅ Pharmaceuticals

✅ Food & Beverages

✅ Cosmetics

📌 Key Coverages:

• Accidental Contamination: Example – A wine manufacturer recalls products due to improper storage.

• Malicious Tampering: Example – Someone intentionally contaminates a food product.

• Policy Extortion: Example – A threat to contaminate products unless a ransom is paid.

💡 Also covers business interruption losses & rehabilitation costs.

🚗 2. Standard Recall Product Insurance

For industries making non-ingestible products:

✅ Auto manufacturers

✅ Engineering companies

✅ Toy & furniture manufacturers

📌 Key Coverages:

• Recall expenses – Covers direct recall costs.

• Product guarantee – If the product fails to meet its intended purpose.

• Financial loss liability – Covers customers' financial losses due to a recalled product.

📌 Example:

A car part manufacturer discovers faulty airbags and recalls them. If a car company files a claim for financial loss, this insurance covers the liability.

Who Should Buy Product Recall Insurance?

Originally, companies bought this policy due to contractual requirements from larger clients like BMW.

🚀 Today, more manufacturers understand its benefits:

✅ Prevents reputational damage by conducting timely recalls.

✅ Reduces financial losses from defective products.

✅ Ensures compliance with customer and government safety standards.

📌 Industries that should consider this policy:

• Exporters to Europe & USA (where consumer rights awareness is high).

• Meat processing & frozen food companies.

• Medical device manufacturers.

• Electronics & auto part manufacturers.

💡 If you are exporting products, you likely need this coverage!

Underwriting Considerations for Product Recall Insurance

Insurers assess various factors before issuing a recall policy.

📌 Key risk factors:

✅ Type of product & industry (higher risk = higher premium).

✅ Company’s annual turnover & market reach.

✅ Number of production plants & quality control measures.

✅ Regulatory history (past recalls or compliance issues).

✅ Batch size & traceability (ability to track defective units).

📌 Pro Tip: Always review policy conditions & exclusions carefully before purchasing.

Trends in Product Recall Insurance

📈 The demand for recall insurance is growing!

🚀 Key trends:

• More industries are buying recall insurance (not just auto & pharma).

• Small & mid-sized manufacturers are now considering coverage.

• Global supply chain risks are driving more businesses to protect themselves.

📌 Example: Medical device & frozen food manufacturers are increasingly purchasing recall coverage due to strict regulations.

💡 Product Recall Insurance is becoming a necessity for manufacturers worldwide.

Conclusion

🚀 Product recalls can cause significant financial & reputational damage.

📌 Key takeaways:

✅ Product Recall Insurance covers direct recall costs (shipping, warehousing, PR, etc.).

✅ Product Liability Insurance covers legal claims for injuries caused by defective products.

✅ Industries like pharma, food, auto, & medical devices need recall insurance.

✅ A timely recall prevents costly lawsuits & brand damage.

💡 Manufacturers should consider Product Recall Insurance to protect their business & customers.

📌 Special thanks to Neha Yardi for sharing her expert insights!