Recall insurance a growing consideration for manufacturers

A car fitted with Takata airbags, subject to a huge product recall. Image courtesy of Takata Corp.
A car fitted with Takata airbags, subject to a huge product recall. Image courtesy of Takata Corp.

Following a string of massive product recalls across several sectors, interest in so-called ‘recall insurance’ is growing.

Last month Japanese air bag manufacturer, Takata. announced that it was doubling the size of a recall triggered by defects found in their products in a range of cars. The recall, which was the biggest in North American history, has been estimated to cost the company around $4-5bn.

In 2002 Honda introduced new, rapidly deploying side curtain airbag that protects vehicle occupants from head and neck injuries in the event of a side collision - image courtesy of Honda.
In 2002 Honda introduced new, rapidly deploying side curtain airbag that protects vehicle occupants from head and neck injuries in the event of a side collision – image courtesy of Honda.

This cost could have been mitigated through the use of recall insurance. This kind of insurance covers not only the cost of the recall, but also often includes the deployment of specialised crisis management teams, who help the company through the recall period.

Greater product scrutiny globally has lead to a growing number of product recalls and greater interest in recall insurance. Illustrating this point, the US FDA (Food and Drug Administration) alone recalled 9,469 products in 2012 – up from 5,585 recalled in 2007.

“The Product Recall insurance market has steadily grown and continues to do so as more and more businesses recognise the benefits of the cover provided by a Product Recall policy. […]This is against a backdrop of the tightening of product safety legislation and empowering of enforcement authorities around the world,” explained Alex Jones, a press spokesperson for Zurich Insurance.

As well as covering for product faults recall insurance also often covers related issues such as product tampering and extortion.

While the increased scrutiny from quality enforcement agencies around the world is prompting greater interest in product recall insurance, this in turn puts manufacturers under yet greater scrutiny.

In order to calculate premiums, insurance companies will engage in checks and inspections of manufacturing facilities to determine the level of risk.

“We will look for prospective customers to demonstrate the extent of their quality management and controls and ability to respond to a recall incident should one arise. Each prospective customer will be considered on their individual merits,” said Alex Jones.

Within this environment there is an even greater impetus for manufacturers to maintain industry best-practices and consistent product quality.