Product recall

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Product recall insurance is an important part of risk management policy of the company. Each withdrawal of the product from the market may indeed very adversely affect the business of even the most dynamically growing company, and the effects of withdrawal may be reflected in the stock price of the company. More often, its conclusion is also an obligation under the contract – e.g. in case of the producers of semi-finished products or producers in very “sensitive” industries – food, automotive, home appliances. With the globalisation scale of the economy for the entity placing on the market a product that is classified as hazardous, and will be subject to the withdrawal procedure, the costs can be enormous.

 

An entity placing a product on the market is exposed to two groups of negative effects related to the defect:

 

  • Damages caused by the product itself – in this case the insurer will cover potential claims from the business liability insurance extended of product liability clause

  • The second group is the cost related directly to the introduction of a defective product on the market – often many times higher than the cost of the damage caused directly by the defective product. With increasing globalisation and extension of logistic chains, these costs become higher and this trend will only increase within the time.

 

Product recall, for who?

 

The withdrawal of the product from the market is a relatively young institution, associated directly to the development of the consumer rights. In order to cover entities which place their products against withdrawal costs, especially in the era of the global economy, they began to look for solutions, including the insurance market. The US market contributed the most to the development of this insurance and has become a pioneer. This was due to the exponential growth of laws given to consumers, which in our civilization and law circle, sometimes seem absurd. To realise the scale of the threat of the costs incurred related to the withdrawal of the product from the market, it is worth noting that in the US in 2012, 4 075 proceduresfrom food industry took place – and therefore more than 10 of these cases a day.

 

The sectors which are most vulnerable to the withdrawal of the product are:

 

  • Food industry

  • Cosmetics industry

  • Appliances Industry

  • Automotive Industry

  • Pharmaceutical Industry

  • Toys manufacturers

  • Packaging manufacturers

 

Product recall and the Polish market.

 

On the basis of the national law, the most important legal acts, which regulate the liability of entities which place a product on the market are:

 

  • The Act of 30 August 2002 on conformity assessment system (OJ 2010, No. 138, pos. 935)

  • The Act of 12 December 2003 on general product safety (OJ 2003, No. 229, item. 2275)

  • The Act of 16 February 2007 on Competition and Consumer Protection (OJ 2007 No. 50, item. 331)

 

In practice, it should be emphasized that the withdrawal of a dangerous product from the market may take two forms:

 

  • Voluntary withdrawal – it is a situation in which a producer or an entity that introduces a product on the market after being informed of defects in the product or only some of the consignment, in its own initiative, takes steps to remove it from the market

  • Compulsory withdrawal – which is for example the consequence of an administrative decision given even by sanitary and epidemiological station, ordering the removal of a defective product within a specified period.

 

On the Polish market relatively few insurers offer this product, these include: AXA, ACE, AIG, Ergo Hestia and Warta.

 

What costs are covered by the insurance?

 

In the event of a product recall insurer will pay compensation for the following costs:

 

  • Notification to sellers and users of the products and, if necessary, means of mass media.

  • Transport of products to the manufacturer, sellers, etc.

  • Testing products in the event of withdrawal from the market

  • Storage

  • Damage

  • Control of process and the effects of withdrawal

  • Disinfection

  • Legal defence (applies to third party claims in the case of withdrawal).

  • Additionally, the cover may also apply on:

  • Cost of production (of products withdrawn from the market, products still undelivered).

  • Loss of profit (of products withdrawn from the market, products still undelivered).

  • Additional costs associated with the repair of the product, the replacement of the product.

  • Loss of profit as a result of the decrease in sales.

  • Costs of advertising.

  • An important benefit provided by the policy is the cover of the cost of consultants, who in the face of a crisis in the company help to keep control of the situation. The effectiveness of the actions is mostly important when dealing with manipulation or blackmail. In addition, the consultants also advise in the quality management and safety of products (in terms of withdrawal from the market).

  • In terms of cover, the costs of Public Relations consultants, whose actions are designed to prevent or mitigate the effects of the adverse publicity associated with the withdrawal of the product from the market, will be also covered.

 

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