Product Recall

Product Recall: Industry Information

The coverage has been around since the 1980s. The first type of product recall insurance was called malicious product tampering, which only responded to malicious incidents. The limits were $3 million, with six-figure premiums. That's the way it was for a couple of years. Slowly the book of business grew which allowed larger capacity and to sell higher limits of insurance as well as to expand the coverage.

 

Because it's catastrophic insurance in nature, when losses occurred, they are generally major. Clients are not concerned with the smaller losses they can handle financially in house. What they are looking for is protection from the large losses.

 

So today, it's financially plausible for small companies as well. When coverage first came out, because of the price tags and the minimum deductibles required, it was accessible only to large, multinational food companies. But now almost every insurer has a strategy to go after smaller businesses. Products Recall is designed to help the insurance manage the crisis of such an occurrence and help protect against product degradation and third party lawsuits.

 

In addition to Products Recall, we can provide a wide range of other crisis management programs including:

Contaminated Products Insurance

Designed for food and beverage companies, Contaminated Products Insurance covers losses associated with malicious product tampering and accidental product contamination. Coverage encompasses the far-ranging costs associated with these incidents, including the costs of the recall itself and related business interruption, business rehabilitation and consultant expenses.

 

Kidnap & Ransom/Extortion Insurance

Essential for companies with overseas employees, executives who travel frequently and high net-worth or high-profile individuals and their family member's business interruption, business rehabilitation and consultant expenses.

 

Insurance response to losses arising from kidnapping or extortion events, including: kidnapping or alleged kidnapping; bodily injury extortion; property extortion; product contamination extortion; trade secret/computer virus extortion; wrongful detention and hijacking.

 

Specific losses addressed under the policy include: ransom/extortion monies; in-transit/delivery fees; kidnap & ransom response consulting fees; judgments, settlements and legal costs; and death and dismemberment.

MARKET OVERVIEW

Coverage Parameters

Products Recall offers insurance protection in the event of a recall of an insured's product. This protection includes coverage for the insured's product recall expenses and liability to third parties kidnapping; bodily injury extortion; property extortion; product contamination extortion; trade secret/computer virus extortion; wrongful detention and hijacking.

Endorsements available to extend coverage include:

  • Cost to Refund, Repair or Replace Insured's Product
  • Worldwide Coverage
  • Impaired Property Recall Response is available

 

Customer Profile: Recall Response is designed for the following types of operations:

  • Machining, stamping, assembly and heat treating operations
  • Metal and plastic component manufacturing
  • Food and beverage
  • Consumer product manufacturing
  • Electronic component manufacturing and equipment
  • Packaging and bottling operations
  • Medical products
  • Children's products
  • Pharmaceuticals
  • Distributors of foreign goods in the United States

 

Targeted Classes: Classes of business include food & beverage, medical, pharmaceutical, consumer and industrial products.

Target classes include: In addition to Automobile Component Parts and Tobacco products the following are targets:

     
  • Bakery 
  • Breweries  
  • Bottle Manufacture  
  • Can Manufacture
  • Computers
  • Electronic components
      
  • Exercise Equipment
  • Firearms & Ammunition
  • Food Flavorings
  • Furniture & Fixtures
  • Household Appliances
  • Medical Products
      
  • Meat  
  • Meat or poultry accounts
  • Printing/Packaging
  • Safety Products  
  • Toys & Games
  • Vitamins

 

Product Features:

Product Recall Expenses up to $10 million

Product Recall Liability up to $10 million

Minimum Premium $7,500

 

Our carriers can provide expert knowledge of various recall coverage's available and tailor our program to fit the requirements of an insured. In the event of a recall, claim expertise and a legal panel are available to guide an insured through government regulations and requirements.

 

Policy Features

Coverage A pays the first party expenses associated with the recall, such as notification, shipping, warehousing and additional personnel. Through attachment of an endorsement, Coverage A can be extended to include the cost of repair, replacement or refund of the product.

 

Coverage B provides coverage for the claims by third-parties seeking damages due to a product recall. Coverage B may be extended by endorsement to cover liability for impaired property. The optional impaired property endorsement provides coverage for the insured's products being incorporated into another company's product and causing it to not function properly.

 

Submission Requirements:

  • Completed Products Recall Insurance Application
  • 5 years or prior carrier premium & loss information

Recall Response is available non-admitted in all states.

 

In addition to Products Recall, we can provide a wide range of other risks management programs including:

 

Contaminated Products Insurance: Designed for food and beverage companies, Contaminated Products Insurance covers losses associated with malicious product tampering and accidental product contamination. Coverage encompasses the far-ranging costs associated with these incidents, including the costs of the recall itself and related business interruption, business rehabilitation and consultant expenses.

 

Classes of Business - CPI

Classes of risks include a wide variety of manufacturers, processors, and retailers in the stream of commerce of the food supply chain as well as pharmaceutical and cosmetics. The major eligibility factor is that the product must be ingestible or topical. Typical food risks include canneries of fruits and vegetables; manufacturers of grocery products such as breakfast cereals and boxed flour or grain products; condiments; baked goods and snack food; and supermarket chains.

Target classes of business include:

      
  • Bakery 
  • Spirits, Wines and Breweries
  • Candy  
  • Chocolate
      
  • Coffee/Tea  
  • Cookies and Crackers  
  • Dry ready to eat meals
      
  • Retail  
  • Supermarkets
  • Spices

 

Kidnap & Ransom/ Extortion Insurance

Essential for companies with overseas employees, executives who travel frequently and high net-worth or high-profile individuals and their family members, Kidnap & Ransom/Extortion Insurance response to losses arising from kidnapping or extortion events, including: kidnapping or alleged kidnapping; bodily injury extortion; property extortion; product contamination extortion; trade secret/computer virus extortion; wrongful detention and hijacking.

 

Specific losses addressed under the policy include: ransom/extortion monies; in-transit/delivery fees; consulting fees; judgments, settlements and legal costs; and death and dismemberment.

Insurer(s)

MarketScout has various A-Rated or better carriers that can provide International Coverage.

Commission Schedule

7.5-10%, depending on the line of coverage and size of the account.

Application Requirements

MarketScout Producer Agreement Required along with E&O verification and respective state license. No premium volume requirements. We operate on 'open market' basis. We consider one off submissions. We file the tax.

Applications
Title View/Download
MKTSC Recall Response Application MKTSC Recall Response Application

FAQs

1What commissions do I receive?
Up to 10%, depending on the size of the account.
2How long does it take to get a quote?
We require 10 days lead time. We can rush if needed!!!
3Does the recall need to be Government Sanctioned?
No, coverage provides for the recall, removal, recovery or disposal of your product from a third party due to a Covered Incident. There is no requirement for Government involvement nor does there need to be a formal announcement.
4What is a Covered Incident?
The use or consumption of your product has resulted in or poses the danger of causing bodily injury or property damage. This trigger can be endorsed to include impaired property.
5What limits are available?
Product Recall can be issued with limits of $500,000 to $10,000,000. Coverage A and Coverage B can be purchased separately with different deductibles and limits. Or, they can be purchased as a combined limit with a single deductible and participation requirement.
6Can the policy be enhanced?
There are enhancements available: Worldwide Coverage - Amends Coverage Territory to include all parts of the world, excluding any jurisdiction in which this policy may be prohibited by statute, regulation or local laws. Impaired Property - Amends Coverage Incident to include Impaired Property for Coverage B. Cost to Refund, Repair or Replace - Amends Coverage A RRR – coverage includes the following which applies to the recall expense portion (Coverage A) of the policy: • Total amount of refunds given to purchasers of the product • Cost to repair the affected product and make it merchantable along with the cost to return it to the purchaser • Cost to replace the recalled product with a substitute. • Cost of unsold finished stock still on hand if it can’t be treated so as to render it marketable RRR including Business Interruption Expenses – coverage includes the following which applies to the recall expense portion (Coverage A) of the policy: • Total amount of refunds given to purchasers of the product • Cost to repair the affected product and make it merchantable along with the cost to return it to the purchaser • Cost to replace the recalled product with a substitute. • Cost of unsold finished stock still on hand if it can’t be treated so as to render it marketable • Business interruption costs to include gross earnings + continuing expenses over the 12 months following the recall (25% sublimit on BI) Government Recall expands the trigger to the policy for both Product Recall Expense and Product Recall Liability coverage’s to also include recall by a relevant regulatory authority because of potential bodily injury or property damage from the use or consumption of the product. Ultimately, it is the notion that the government can order a recall based on the potential of bodily injury or property damage rather than the actual existence of bodily injury or property damage. Obviously, this is a much lower bar to cross. The addition of government recall adds this additional trigger to both of the sections of the policy.
7What is the Impaired Property Endorsement?
The Impaired Property Endorsement extends Coverage B to include impaired property. Impaired property means tangible property, other than the insured's product, that cannot be used or is less useful because it incorporates the insured's product that is known or thought to be defective, deficient, or inadequate if such property can be restored to use by the repair, replacement, adjustment or removal or the insured's product. Impaired Property is a major exposure of any component or ingredient manufacturer. The resulting damages are similar to product recall claims. The major difference is that while impaired property is less useful, it does not necessarily cause bodily injury or property damage or pose an imminent danger of bodily injury or property damage. The Impaired Property Endorsement was developed to meet the needs of component manufacturers that needed broader coverage than provided by the product recall trigger of bodily injury or property damage.
8What Deductible/SIRs are available?
Our standard deductible is $25,000, but we will be happy to provide you with pricing for higher deductibles. Any retention over $25,000 for Coverage B is quoted as a Self-Insured Retention. Since most insured’s do not have any coverage for product recall/impaired property exposures, their current retentions are unlimited. Many customers have elected high retentions to lower premiums while obtaining limits for truly large losses.
9What is Participation?
You may share Coverage A expenses in addition to the deductible. The standard participation is 5%. The participation percentage only applies to Coverage A. There is no participation percentage applicable to Coverage B.
10What are the costs associated with Product Recall?
Product recalls can involve numerous expenses including but not limited to: • Costs associated with notifying customers, the cost of shipping and disposal of the product, extra warehouse expenses and the cost of extra personnel required to conduct the recall • The cost to repair, refund or replace and ship the product back to the customer • Damages of a third party resulting from the recall • Income loss and the cost to rehabilitate brand name and reputation Product Recall helps limit the negative financial impact of a product recall.
11What does Product Recall cover?
The policy has two parts, Coverage A, First Party Expenses and Coverage B, Third Party Liability. Coverage A covers the Direct Expenses of the Insured associated with the recall, this includes: • Notification and communications • Shipping • Actual cost of disposal of the products • Warehousing/storage space • Extra personnel Coverage B covers damages of a third party sustained due to a product recall attributable to your product. It covers the insured's legal obligation to pay compensatory damages. This includes but is not limited to: • The recall expense of any third party for the recall of any product that incorporates your product including the cost to repair or replace such product • The business interruption losses of others resulting from the covered incident • The cost to repair or rehabilitate brand reputation • The additional cost to purchase substitute goods to replace your product(s) Product Recall does not cover Bodily Injury or Property Damage form products involved in a recall.
12Which coverage does my client need?
Most companies need both. Any company that sells finished goods under their own label has a greater exposure under Coverage A than Coverage B. You will handle the recall in most cases directly incurring the Recall expenses. However, if there is a third party between your company and the ultimate consumer, you also have an exposure under Coverage B because that third party can claim loss of income or reputation due to the recall. Similarly, any company that manufactures a product that is ultimately sold under a third party's brand name, whether it be a component part or the finished product has a greater exposure under Coverage B. You may or may not be involved in the decision to recall or involved in the actual recall itself, but can still be held liable for damages by the ultimate seller. However, Coverage B would not cover any direct expenses you could incur such as replacement parts.