Irene Abrahams, Senior Underwriter– Liabilities, AIG
Product contamination and recalls relating to food and beverages continue to make headlines globally. While the recall of a product can be very costly and logistically complex, the impact on the business as a whole can be far reaching and even with stringent operational controls in place the risk of a recall remains.
There are many examples of the different scenarios that could lead to a recall and though accidental or unintentional contamination is front of mind, products can also be recalled for packaging issues and labeling errors. Manufacturers are equally at risk of becoming a target for extortion and intentional tampering.
A product recall insurance policy provides the following coverage:
- Accidental product contamination – introduction of a foreign substance during manufacturing and / or an error in the manufacture of the product including labelling, blending and mixing
- Malicious product tampering – malicious alteration/contamination of the product so as to render it unfit or dangerous for consumption or to create such an impression to the public
- Product extortion – any threat to commit malicious tampering for the purpose to demand ransom money
- Government recall – official recall ordered by authorities to comply with food and safety regulations.
Any of these instances would be covered by a Contaminated Product Insurance (CPI) policy and, if the correct insurer is used, the cover would extend further than just the recall of the product. It would also include the cost of the physical withdrawal of the items from the shelves, from customers and warehouses. The policy would also cover the transportation costs, overtime, the cost of additional staff, storage space for the goods once they are collected and any disposal costs.
Beyond these recall expense’s CPI cover would protect a client against loss of gross profit caused by the event and assist them in managing the impact on their brand while protecting supply relationships, all vital elements of any business recovery.
In conjunction with this broad cover AIG, for example, offers a pre-incident consultancy that gives clients access to specialist crisis management consultants who provide pre-loss services. These consultants support clients with managing their risk exposure, processes and practices to help avoid or reduce potential loss.
In South Africa companies need to navigate through a recall crisis themselves which is why AIG has partnered with reputable crisis management agencies to help lift this burden. This ensures that expert consultants are on hand to help our clients manage the recall while mitigate the extent of the crisis incident.
Web site link for more information: https://www.aig.co.za/business/our-products/liability/contaminated-product