A product recall can be very expensive. Frequently, businesses become aware of issues with specific products or even individual production batches when consumers complain. In some cases, they may ask for refunds of the amount paid to purchase an item because it does not work properly.
Other times, they may share information online which leads to a drop in sales because consumers question the quality of the product. Occasionally, product defects can be serious enough to warrant lawsuits. They may have caused significant property damage or injuries because they failed.
Businesses may need to initiate recalls to take defective products off the market and limit their exposure. Pre-existing insurance policies can potentially help cover recall expenses.
What type of coverage is beneficial?
Businesses that generate some or most of their income through the production of certain goods may carry product recall insurance. These policies can help cover the expenses involved in recalls.
Product recall insurance can cover the cost of replacing defective products or refunding consumer purchase costs. Product recall coverage can significantly reduce the financial impact of communicating with consumers, replacing or repairing defective products or refunding the cost of their purchase to consumers.
However, product recall coverage does not protect a company from the expenses generated through consumer lawsuits related to defective products. Organizations may need to carry product defect coverage as well to reduce the potential economic harm if consumers sustained major injuries or property damage losses because of a defective product.
In scenarios involving issues with manufacturing equipment or supplier issues that caused defects in products, companies may need to temporarily idle their production lines. In such cases, business interruption insurance could be helpful as well.
The coverage available can offset ongoing costs, such as rent or loan payments for facilities and worker wages, in specific scenarios. How helpful insurance is depends in no small part on the language included in the policy and the underlying cause of the product defect.
Leaders at organizations and entrepreneurs starting new manufacturing businesses may need help navigating insurance claims and responding to consumer complaints about defective products. Carrying the right coverage and having proper support in the event of consumer lawsuits or recalls can help limit organizational setbacks due to defective products or manufacturing issues.
