5 ways to be prepared for a possible product recall

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A quick Google search for product recalls yields pages and pages of news stories about recalled food items, baby products, cars, electronics — you name the product category, and something in it has probably been recalled. Sometimes, these recalls are the result of sickness, injuries or even death. 

Recall consequences for business owners 

A single product recall can affect millions of consumers around the world, thanks to the global supply chain. One recall may also affect numerous manufacturers, as one component can be used in a number of products (like a chip or a battery). 

Product recalls not only affect the consumer, they also have consequences for business owners — the product manufacturer and retailer. Large companies with robust cash flow and brand recognition may be able to withstand the short-term effects. But for smaller companies, the financial losses and hit to brand reputation resulting from a product recall can shutter the entire business. 

As a business owner, how can you be ready for the perils that a possible product recall could bring? 

Prepare a plan 

If you’re faced with a recall, your first instinct might be to quietly remedy the issue with the product. But this isn’t the best way to handle the situation.   

Rather, have a plan of action to immediately address the recall. Your plan can include steps to take for inbound and outbound communications.  

• Start by informing your employees about the recall so they’re not blindsided by news reports or negative commentary online.  
• Proactively reach out to customers on all social media accounts with news of the recall so they hear it from you first.  
• If you come across negative reviews and commentary online, address these concerns immediately and directly. Studies show that quickly responding to reviews — including negative reviews — leads to better brand loyalty.
• Contact your insurance professional. If you have product recall insurance, your coverage likely offers recall strategy assistance.

Also, consider setting up a product recall team that fields all incoming calls related to the recall. Having a dedicated phone line or web page for recalls may help streamline these incoming calls and inquiries and provide a central hub for customers who were impacted. 

Product liability insurance vs. product recall insurance 

Insurance is also an option that can help defray costs associated with recalls. In fact, if your company designs, manufactures, sells or distributes consumer products, both product liability insurance and product recall insurance are critical.  

Product liability insurance protects your company against claims of injuries or property damage as the result of using your product. Types of claims can include design or manufacturing defects, inadequate/misleading labeling or illness caused by consuming a food product. Often, product issues that result in claims are very difficult to foresee and may be out of your control. 

Product recall insurance protects your company against the costs associated with taking the product off the market and out of the hands of consumers. It will reimburse you for financial losses due to recalls, whether involuntary (required by a government agency) or voluntary (a manufacturer or distributor voluntarily recalls a product from the consumer stream to prevent imminent illness or injury). Costs associated with recalls can be very high. They can include costs stemming from investigations, crisis communications, reimbursements, product correction, product retrieval, shipping, testing and disposal.

As product recalls continue to occur with alarming frequency, business owners must be prepared to meet them head-on. Take proactive steps to shield your business’s bottom line and brand reputation. Start a conversation with your insurance professional about how to incorporate product recall and product liability insurance as part of your plan to protect your business should a recall ever occur.  

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