This past year drew massive attention to product safety
issues. Several recalls, including petfood, have led to reduced
public confidence in product safety. Companies struggling with
product recalls have suffered from loss of reputation, damage
to their brands and businesses and defense and liability
costs.
Long before a risk becomes a reality, notes insurance expert
Donna Wilson of Kelley Drye & Warren, consumer product
companies (regardless of their place in the supply chain)
should make insurance a key component of their risk management
program by following these ground rules:
1.
Anticipate risks and insurance needs.
Make sure your company's risk management team and legal counsel
meet at least annually to discuss risks and anticipated
exposure, review past claims experience and analyze
developments in the industry.
2.
Negotiate for the best coverage.
Seek competing bids and negotiate for the coverage needed if
the insurance initially offered would not adequately protect
your company.
3.
Avoid being penny-wise and pound-foolish.
Do not forego additional coverage without first taking the long
view and carefully considering the risks of doing so.
4.
Procure sufficient insurance coverage.
Decide which policies your company should purchase. Consider
the following:
5.
Seek supplier assurances.
Talk to your suppliers about purchasing sufficient insurance
coverage.
6.
Carefully review your company's policies.
Your company's risk manager should review draft insurance
policies before they are issued, paying close attention to
potential exclusions. All policies should be copied
electronically and secured off-site; do not rely on the broker
alone to safeguard them.
In the event your company is denied coverage, be persistent.
Do not accept "no" for an answer.
Product recall coverage shields companies from financial
losses suffered as a result of a recall, such as:
- The cost of physically removing the product from
retailer shelves;
- Storing or disposing of the product; and
- In some cases, the cost of rebuilding the company's
reputation following a recall.
Menu Foods' petfood recall in 2007, the largest in
history, reportedly cost US$50 million. This insurance can
sometimes be added to another policy to fill the gap where
such claims are excluded. Be aware that most insurance
policies allow for coverage of either the purchase price of
the affected pet or the veterinary expenses
involvedwhichever is lowest.