Understanding the reality of a product recall event

10 September 2018

You can’t shift a car from sixth gear straight into reverse, but that’s exactly what a major product recall incident demands of your business.

Businesses focus on selling products and/or services to customers. A product recall event reverses that focus and, instead of pushing product out, you’ve suddenly got to pull it back.

Few companies understand the practical implications of a product recall event or have the skills to execute one effectively.

In particular, companies underestimate the impact it will have on their ongoing activities and the significant business interruption losses it can generate.

THE REALITY OF A RECALL EVENT

Product recall insurance provides cover for accidental contamination – 95% of claims – malicious product tamper and extortion. The insurance responds to events where there’s potential to create bodily injury.

But do you have the in-house capability to examine a contaminated product? Could you assess the threat it poses to people’s health, pinpoint the source, and liaise with the appropriate government, regulatory and industry bodies?

How quickly could you create consistent, multichannel communications? Could you manage negative publicity and enact an effective crisis management strategy?

All of this must be done within hours. There’s then the challenge of deciding what products to recall, identifying their location and deploying the necessary resources to make it happen. And while this happens, how do you meet orders? Could you fulfil contracts? If not, how quickly will they be lost and when will you get the opportunity to win them back?

Product recall is not a matter of losing production for a day or two. It has the potential to kill your brand and your business.

Get it right and customers, suppliers and regulators will respect you as a professional business that takes its responsibilities seriously. Get it wrong and they see you as a company that can’t cope in a crisis, doesn’t value public health and puts profit above customer safety.

RESPONDING TO THE RISK

Product recall insurance provides cover for first- and third-party recall expenses, business interruption losses and brand rehabilitation. It also provides pre- and post-loss access to expertise.

General liability policies won’t cover all these exposures or offer sufficient limits. Product recall insurers will provide access to crisis management experts, PR specialists and food technicians. Some will provide funding for pre-loss activity such as reviewing existing recall plans, auditing suppliers and delivering in-house training.

A successfully managed recall event involves a lot more than simply getting your product off the shelves. Have you got the right partners in place to provide the right response?

PRODUCT RECALL CASE STUDY – IT REALLY IS A MATTER OF LIFE AND DEATH

  • In January 2009, Peanut Corporation of America (PCA) issued one of the largest ever food recalls for products that might contain salmonella
  • There was evidence that officials knew products were contaminated
  • In total, the recall involved almost 4,000 products, from more than 360 companies, that contained PCA’s tainted peanut products/ingredients
  • Nine deaths were attributed to the outbreak and there were more than 700 reported illnesses across 46 states
  • PCA’s owner was sentenced to 28 years in prison.

For further information, please contact ClientFirst@jltcanada.com.