Growing Demand for Product Recall Insurance

Food recalls and product recalls in general can be an expensive business.

Just yesterday Abbott Laboratories announced that it will take a one-time charge in the third quarter 2010 for expenses related to its voluntary recall of five million cans of certain Similac powdered infant formula due to possible contamination by beetles.

The Food and Drug Administration (FDA) has determined that while the formula containing these beetles poses no immediate health risk, infants who drink it could experience symptoms of gastrointestinal discomfort that could cause them to refuse to eat. A Wall Street Journal article has more on this story.

(Note: Abbott said that parents and caregivers can go to www.similac.com/recall10Â  and call toll-free number: 1-800-986-8850 for more information)

The latest contamination event underscores the point that whether it’s eggs, toys, cars, peanut butter or pet food, product recall as a precautionary step or worse following actual injury or damage can be costly to a business and its reputation.

A just-released Aon study notes that the claims costs connected to the recent half billion egg recall will be unprecedented and include liabilities such as business interruption and reputation damage.

Aon also reports that the increasing frequency and severity of food recalls is prompting greater awareness among food system, agribusiness and beverage companies to insure against such events.

But it’s not all about insurance.

According to Aon,  the best strategies to improve an organization’s chances of recovery from a major contamination or recall incident include:

Pre-incident planning: every company should have a well-documented and practiced product recall or retrieval plan, with a clear chain of command and communication. No amount of insurance can replace customer confidence lost due to poor planning and/or execution of a crisis or recall.

And

Crisis management planning: an appropriate crisis program goes beyond the pre-incident plan to coordinate all activities associated with a crisis. Team members may include the CEO, general counsel, risk manager and other company reps.

A recent paper by Lockton Companies has more on the innovative coverages developed by insurers to respond to product recall and contamination events.

2 thoughts on “Growing Demand for Product Recall Insurance”

  1. Interesting comments, Claire. I’ve usually found there is an inherent mis-trust between PR and legal/risk management people. That is an obstacle to overcome when implementing pre-incident planning and crisis management planning. I have my masters in PR and have written on the subject some. I’d love to discuss further sometime…

    Jim

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