Product Recall Insurance Overview

What Is Product Recall Insurance

From vehicles to pharmaceuticals to food products to cannabis, what can business owners learn from mass media coverage of product recalls? For manufacturers of all types of consumer goods, they might serve as a wake-up call, or reminder, to the potential impact of a product recall event and a lesson in what should be done immediately to prepare for potential exposures. Faulty products cause thousands of deaths each year, causing countless illnesses and lawsuits. These incidents can also lead to significant financial losses, damage to brand reputation, and a loss of consumer trust. Therefore, it’s imperative for businesses to have a robust plan in place to manage such crises. The widespread media coverage of these events serves as a stark reminder of the potential repercussions a recall can have on a company. For manufacturers and business owners, these stories highlight the urgent need to understand, prepare and budget for the risks associated with product recalls. Product Recall Insurance is a specialized insurance coverage designed to mitigate the financial impact of a recall. It can cover various expenses associated with the recall process, such as notification costs, shipping costs, disposal costs, and even the costs of public relations campaigns to rebuild the company’s image.

Product Recall Insurance For Canadian Businesses

The Canadian Food Inspection Agency (CFIA) and The Federal Government mandates hundreds of recalls each year, not including voluntary recalls, which are unrecorded. Costs from a product recall or contamination can easily climb into the millions. Long-term losses result not only from the expense of a recall, but may also come from falling sales due to poor consumer confidence, brand rehabilitation expenses and potential shareholder lawsuits.

Despite recall frequency and the potential for extraordinary costs, many companies don’t adequately plan, prepare and practice for – or buy product recall insurance to protect against – product recall events. In addition to proper product recall insurance coverages, careful planning is essential in managing the risk of a recall.

What Does Product Recall Insurance Cover

Product recall insurance for first-party losses caused by product tampering and contamination incidents are broadly labelled as product recall insurance. Product recall insurance policies help to cover the additional costs of a recall, including product loss, costs to withdraw the product from the market, product disposal, product testing, overtime wages, and crisis management — costs that can be devastating because they arise at a time when a company’s revenues are typically hardest hit.

There are several product recall insurance coverage forms, each designed to isolate some components of first-party product exposure. ALIGNED Insurance can ensure your product recall insurance policy provides indemnity for:

  • Recall expense. This out-of-pocket expense is associated with executing a large-scale product withdrawal. It includes costs like 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.
  • Lost profits. Product recall insurance indemnifies the insured for profits that would have been earned on the withdrawn products and also for profits that would have been earned on future product sales but which were not earned because of resultant future sales declines. This is usually limited to a specified time period.
  • Brand rehabilitation expense. Most product recall insurance policies will also indemnify the insured for the necessary rehabilitation of the recalled product’s consumer image. This includes costs like extra advertising, extra expense to rush a new product to market and special promotions to rebuild public trust in the manufacturer and its products.

The product recall insurance marketplace is highly specialized. ALIGNED Insurance can help secure the coverage you need and collaborate with you to develop a product recall insurance program that meets your needs.  Just Click Here To Get A Quote or Call 1-866-287-0448 to speak with an ALIGNED Insurance advocate or connect with us at to learn more.

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