The Monday Morning Quarterback: Product Recall Coverage

Have you ever said or done anything that you instantly wanted to take back?  Maybe you got talked into staying for “just one more round” which we all know never ends at just one.  Perhaps you were trying to distract someone in a basketball game and did something embarrassing?  Said something you wish you hadn’t at a work golf outing?  Or if you’re like me, you walked into a business and asked for “Bill” only to find out that “Bill” passed a year and a half ago.  That wasn’t the first time that one’s happened to me, nor will it be the last.  Actually, all of these things have happened to me in the last few years.

If you answered “no” to that question, you’re lying to yourself or you’re Chuck Norris.  Of course we’ve all done things at least once in our life that we wish we hadn’t.  It might not be something we regret today, but it can make you feel pretty foolish for awhile.  While we may not be able to take these things back in our personal life, there is a silver bullet available that gives some businesses the ability to do this at a minimal cost.

Product recall coverage is a beautiful thing if you are a manufacturer.  For our sake, let’s say you are a manufacturer of an incredible device that doubles the fuel economy of a car while at the same time boosting its horsepower.  It’s such a great product that my Chevy Impala now sprints like a Ferrari while getting the fuel economy of one of those ridiculous Smart cars.  There’s one problem with this miracle product – it has a tendency to cause cars to explode due to an electrical short in this new product.  Luckily for you, this problem was detected early, but because it was such a hot item you’ve already sold over 500,000 units.  Or in the case of GM, a real world example, you saved a few pennies on an ignition switch that has caused irreparable damage to many families.

Instant regret right?  In our example, had you spent another $.10 on the better electrical circuit, you wouldn’t have had this issue.  In hindsight, that extra $.10 is looking like quote the bargain right now.  Luckily for you, your broker had done a nice job of helping you plan for something like this.  You conduct mock recalls throughout the year and also have a solid recall plan in place.  Additionally, not only has he helped you put together a PR recovery plan to handle the bad press, but he also suggested you purchase product recall coverage.

What does product recall coverage protect you against?  While coverage depends on the carrier, it usually includes costs such as customer notification, shipping costs and disposal costs. Coverage generally applies to the firm itself, though additional coverage can be purchased to cover the costs of third parties.  Essentially, it covers those instant regrets that you and I only wish we could for ourselves. 

From personal experience as an underwriter, I can tell you that these costs add up real fast.  I’ve seen a small manufacturer rack up $750,000 in recall expenses in one week.  If you’re a manufacturer and have never discussed this with your broker, it’s time to find a new one.  You should at least know this option is available so you can make a conscious decision as to whether you want it for your business.
 

We’ve all said and done things we wished we hadn’t.  So the next time you do something truly embarrassing, just think about how great it would be to be a manufacturer.

 

Andy Bertram CPCU, ARM-E

Risk Advisor

C.O. Brown

Phone: 651-800-6173

Fax: 651-388-8443

www.cobrown.com

abertram@cobrown.com