Product recall. Does your company have the coverage it needs?
It can happen in any industry. Product recalls are what keep CEO’s and business leaders up at night. A harmful defect in one product can threaten the health and safety of the general public and could potentially bankrupt a company.
It can also cause lasting damage to the reputation of a company.
More than just the company that produces or manufacturers a product, the damage can spread to the retailer that stocks the product on their shelves. A product recall situation is one that needs to be handled immediately and decisively.
A product recall can impact your business out of the blue. That’s why we’ve prepared this information about product recall insurance companies in Canada. Our goal is to help you make informed decisions about your commercial coverage.
Here’s how Canada determines when to recall a food product
Faulty products cause thousands of deaths each year, countless illnesses as well as costly lawsuits. This is why food product recalls are often the first thing that come to mind. The Canadian Food Inspection Agency (CFIA) is in charge of investigating and recalling food products across the country. Below are some of the triggers that may lead to a food safety investigation and, ultimately, a food recall in Canada.
- “Illness outbreak – Public health officials identify a potential link between illness and a specific food.
- Food test result – Food test results obtained by the CFIA, industry, a provincial or territorial government or another country identify a possible health risk.
- CFIA inspection finding – CFIA inspection activities, such as visual observation of products and manufacturing practices or analysis of company records, detect a food safety concern.
- Consumer complaint – A consumer complaint is received about the safety of a food product.
- Company-initiated recall – A company informs the CFIA that it is undertaking a self-initiated recall.
- Recall in other country – Another country recalls a food product that is also present in Canada.
- Other triggers – Other triggers can include information from law enforcement about potential food tampering, trade complaints, information from consumer associations, or even posts on social media websites.”1
Firstly, an unsafe product is identified. And after that, it needs to be removed from the marketplace. The CFIA will initiate a detailed process to manage the product recall, business activities as well as public communications.
Did you hear about these product recalls in Canada
While food product recalls are arguably the most attention grabbing news stories, recalls of other goods also have broad impact on consumer confidence.
Perhaps one of the most dramatic examples of a product recall happened in 2015. Around the world, an estimated 32 million vehicles were recalled. The Takata air bag recall quickly had a domino effect on eleven leading automakers.
This massive recall included an estimated 1.41 million Canadian autos reports The Globe and Mail. “Millions of Takata air bag inflators can explode with too much force, spewing metal shrapnel into drivers or passengers. Six people have been killed and more than 100 injured due to the problem.” 2
More recently in Canada, parents noticed and reported a problem with car seats. A 2019 CBC News report cites “dozens of parents across the country are raising safety concerns about fraying straps on their Evenflo child car seats, prompting Transport Canada to investigate.”3
Do you recall 2019 headlines about these major consumer product recalls?
Consumer memories are long. That’s because consumers buy products from manufacturers and retails they trust. In 2019, millions of Canadians learned about an ingredient that faced a worldwide recall. As a result, manufacturers of Zantac and 12 other heartburn medications containing ranitidine voluntarily recalled their products from the marketplace.
CBC News notes “the reason regulators have flagged some ranitidine products is because of an impurity called N-nitrosodimethylamine (NDMA). The European Medicines Agency said NDMA is considered a probable human carcinogen (a substance that could cause cancer) based on animal studies. NDMA is also an environmental contaminant found in water and food including meat, dairy products and vegetables, according to the U.S. Food and Drug Administration (FDA).”4
Auto dealerships, baby product retailers and pharmacies were all impacted by these recent recalls. In a worse case scenario, your business could find itself subject to a consumer lawsuit when a product recall happens.
Product recall in Canada | What you need to know about key coverages
This is why getting product recall insurance from top insurance companies in Canada is so important. Be it vehicle air bags, pharmaceuticals or food products, a defective component or product can quickly become headline news.
When examining product recall coverage, be on the lookout for:
Recall expense. This out-of-pocket expense covers a large-scale product withdrawal. It includes costs such as extra temporary employees, overtime, public safety messages, special testing and handling, destruction and disposal costs and crisis management and/or PR consulting fees.
Replacement cost. As the name implies, this is the cost of replacing any product that had to be destroyed. This includes the cost of materials, labour and overhead directly associated with producing the product.
Brand rehabilitation expense. Most product recall insurance policies will also indemnify the insured for necessary
Lost profits. There’s a cost to withdrawing products from the marketplace. The lost profits that result from a product recall situation can add up quickly. These profits may be immediate, or profits from future product sales. It’s important to note that when you are looking at loss profits related to product recalls a time limit may apply.
Getting product recall insurance from top insurance companies in Canada is important. Our team can help you find the best coverage options for your risk exposures. We specialize in commercial insurance only and know how to align risks with the best possible coverage options.
Don’t risk the exposure of product recalls. We can help.
To sum up, the additional costs of a recall are wide-ranging. Revenue losses, the cost of withdrawing a product from market, disposal, testing, overtime wages as well as crisis management quickly add up. Despite the potential for extraordinary bottom-line costs, many organizations fail to prepare for this type of work with adequate product recall coverage.
Not all insurance companies in Canada offer product recall insurance coverage. We have relationships with more than 65 top insurance companies in Canada.
Our team is here to help you secure the product recall coverage that specifically aligns with the risks your business faces across Canada.
Sources: 1 Government of Canada, Canada Food Inspection Agency “How we decide to recall a food product”
2 The Globe and Mail: “1.41 million Canadian cars affected by expanded air bag recall” 3 CBC.ca: “‘We were shocked’: Parents complain of frayed harnesses in Evenflo child car seats” 4 CBC.ca: “What to do during the recall of prescription Zantac and other heartburn medications” 5 IMRI: Brand Rehabilitation