The direct cost of collecting affected products may only be part of the financial impact of a recall.

A serious recall can also reduce sales and interrupt normal business operations.

Can lost profit be insured? #

Depending on the Product Recall policy, cover can include certain Business Interruption or loss of gross profit resulting from an insured recall event.

The basis of calculation varies between policies.

What could cause the financial loss? #

Examples can include:

• Products being removed from sale.
• Production being temporarily stopped.
• Customers cancelling orders.
• Retailers suspending a product line.
• Loss of customer confidence.
• Time required to identify and rectify the problem.

Is every reduction in sales covered? #

No.

The loss needs to arise from an insured event and meet the policy requirements.

Policies can contain:

• Waiting periods.
• Indemnity periods.
• Limits.
• Sublimits.
• Retentions.
• Specific methods for calculating loss.

What about long-term reputational damage? #

Product Recall policies may provide crisis management and rehabilitation-related benefits, but long-term loss of brand value should not automatically be assumed to be insured.

The actual wording needs to be reviewed.

Why is this important? #

For some businesses, the loss of sales following a recall can be substantially greater than the cost of retrieving the affected stock.

The Business Interruption component should therefore be considered alongside the direct recall expense cover.