Risk-in-Depth
Recall Insurance – A Guardian in Nightmare
The importance of insurance coverage in case of a product recall
'Product recall' redefines nightmares for companies in all the sectors. The recall is a situation when a product placed in the market for consumption has no other option but to travel back to the manufacturer because of technical faults, defective functioning or a condition in the product which can cause bodily injury or property damages to consumers. Product supply chains are getting more widespread and complex. This increases the potential risk of errors, defects, and contamination at all levels of those supply chains. At the same time, regulatory and consumer protection standards are becoming more stringent and notices of violations more frequent.
When a company places products in the market, people make their buying decisions and association with any brand according to the past history of the company, trustworthiness of a brand, reputation for quality product, after service guarantee, and well-recognized industry status of a product. So, when a product is recalled, it’s not just the product but it also puts brand value and market position in danger. Product recalls can thus have far-reaching consequences and put severe financial stress on the company. Behind every product recall lies a huge cost related to human resources, logistic system, expenditure to bring back the product, correction of product, and if required, to destroy the product safely, as well as the cost to recover the damaged reputation and brand value.
Some of the recent large scale recalls are:
- German car maker Volkswagen (VW) AG initiated a recall of as many as 3.4 lakh vehicle units of 13 different models in India. This was a part of the global recall to replace a software which allegedly helped the car maker to pass certain emission tests.
- Another major recall was by Honda to replace airbag inflators in 41,580 affected cars. It was a part of the 'Takata Impact' in the automobile industry. Takata, a Tokyo-based car parts giant, is facing lawsuits and huge cost implications over an airbag defect linked to a few deaths globally. The Takata Impact has been a global phenomenon with Japanese car companies being particularly badly hit by its faulty airbags. Honda, Hyundai, Toyota, and Nissan have gone in for recalls to fix the Takata airbags.
Companies are under ever greater scrutiny from governments, media and the public as the number of recalls like above have grown in recent years and it is gaining regulators' attention. To offset their own risk, companies will often pass the liability for their recalls down the supply chain to the component part manufacturer responsible for the defect in the vehicle. This could result in a devastating financial impact for the supplier too.
How to manage your recall risks?
There are various ways to manage your recall risks e.g. robust planning for recalls via Recall Plan, risk transfer, etc. To protect against the substantial costs that can result from these recalls, many businesses purchase insurance policies that apply specifically to expenses and claims arising from recalls. Product Recall Insurance works as a damage control mechanism in addition to balance sheet protection for the cost of the recall. The companies need to carefully choose the right insurance cover which covers them from the entire crisis situation comprehensively.
ICICI Lombard General Insurance is poised to be the 'Guardian Angel' in the case of product recall situations with its 'Recall Insurance' Policy in the market. With the backing of an expert team of legal professionals, underwriting officials, personal support specialists, ICICI Lombard General Insurance is always ready to help the companies in product recall situations. We are bringing this policy to ensure that the company's, and in turn, its employees' future is safe and secure with the much-needed backup and strategic support.
Product recall insurance is intended to address two major issues a manufacturer may face should it become necessary to recall a product:
1. Expenses incurred to conduct a recall by the insured
2. Third party liability to pay recall expenses incurred by the insured's customer or OEM
- Advertising and Communications expenses
- Transportation costs
- Extra expenses to rent additional warehouse space
- Additional staff costs
- Disposal costs
We want to make sure that companies in today's ever-competitive world operate with a positive attitude while knowing that they have the assurance of a perfect insurance partner. We are at hand to help and support in unforeseen crisis situations like a product recall. ICICI Lombard is on a constant endeavor to come up with innovative and much-needed services to all our customers. The 'Brand Recall Insurance' policy is born out of this, and we aim to nullify all the risks associated with 'Brand Recall' providing the affected companies with a much-needed respite.
