What is Product Recall Insurance?

Product recall insurance is a type of insurance policy purchased by a company or business that protects against the possibility of a recall of a specific product. This recall may be initiated by the company itself or by a regulatory body that oversees the industry in question. There are two main types of product recall insurance policies, which differ in size and scope. Any type of such insurance will generally provide the company with coverage for costs of disposal of the recalled product along with costs for communication to the public about the recall.

When a company manufactures a product, it is engaging upon a relationship with the consumer that is built on trust that the product is safe and reliable. If something occurs to damage that relationship, the company can be damaged beyond repair. Should such damage be caused by the recall of the company's product, it may require drastic and costly measures to get the company back to its original standing. Product recall insurance is often used in such a situation, supplying the monetary heft to implement the procedures necessary for rejuvenating the company's brand name and restoring its operations.

A company that decides upon product recall insurance must decide which type of insurance is best suited for its needs. If the company is smaller and doesn't require a third party to sell its products, then coverage A, as it is known in the recall insurance industry, might be the right choice. This coverage allows for payment of expenses pertaining to communicating with the public about the recall, such as media announcements or advertising, as well as any costs incurred from paying employees to dispose of the recalled material.

In most cases, a big brand-name company or any company that sells its product through retailers would likely consider the more inclusive coverage B. This type of coverage would include expenses similar to coverage A as well as extra demands placed upon the company by retailers for disposal of the product. These may include disposal other than simply tossing the product in the trash, costs for shipping the product elsewhere, and even rented warehouse space to hold the product for possible testing. Coverage B also usually allows for the redistribution of the product.

There are other differences between the two coverages that a company needs to recognize before making its choice. For example, while coverage A allows for the company itself to determine the process of recalling the product, coverage B stipulates that the insurance company itself can be much more involved in the recall procedures. Regardless of what choice a company makes, product recall insurance is a good step to take to protect against possible financial ruin caused by an unexpected manufacturing mishap.