IRDAI License Number: IRDAI/INT/ISNP/2022/250

Product Recall Policy

Epoch Insurance Brokers Private Ltd.
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Product Recall Policy
Introduction
Who can take this Policy?
Coverage
Add on Covers
Basis of Sum lnsured
Exclusions
Introduction

This policy covers various expenses incurred in recall of a product with a manufacturing defect (discovered subsequent to its production) to prevent any potential liability that could have arisen due to the use of the defective product.

Who can take this Policy?

All industries where use of a defective products by consumer can be a cause of liability claim eg. - pharmaceutical, automobiles, food products, children’s toys, domestic and industrial machinery etc.

Coverage

The base cover in the policy is for Recall Expenses which includes:

  • Notification expenses on print/electronic media
  • Transporting the recalled products form a dealer/purchaser to a specified location
  • Disposal expenses (eg. for food/pharmaceutical products)
  • Additional storage/other logistic expenses

Defense Costs (incurred in consultation with Insurer): Expenses incurred on a liability suit in this regard

Add on Covers

Pre-Recall Stage:

In fact identifying the issue & planning a structured recall is a very important step in minimizing the impact of the adverse event. Selecting & hiring a Crisis consultant (with consent of Insurer) to mold the negative public perceptions in favor of the Company is a very useful add on cover.

Other minor add ons are:

  • Repairs of impaired property
  • Dismantling & refitting expenses etc.

Basis of Sum lnsured

All the direct costs to be incurred in a recall event should be covered:

All logistic costs: Publishing the recall notice, Transportation, Storage of recalled goods
Safe Disposal (if required): Especially for food & pharmacy products

Two sum insured limits to be opted in the policy are:
  1. Product recall expenses (1st party costs) specifying per incident as well as aggregate limits
  2. Product recall liability expenses (3rd party costs) also with per event/aggregate limits

Exclusions

These are main exclusions in this policy:

  • Event prior to Retroactive date mentioned in the Policy
  • Event occurring outside the specified Territorial limits in the Policy
  • A decrease in sales of the product subsequent to the recall event
  • A breach of warranty/willful disregard of norms
  • A contractual liability
  • A pre-existing condition
  • Failure to achieve performance guarantee

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Important Points to remember while Buying the Policy

Adequate Sum Insured - To Avoid Underinsurance

Recalls have become very frequent & costly

  • Recalls in Pharmaceutical, Automobile sector are becoming increasingly common & leading to large unplanned financial outgo.
Ensure that assets should be covered under the right entity/company

Laws to order/enforce recall

  • Government oversight is becoming stronger - Laws for recall of Packaged Food Products, Pharmaceutical products & Automobiles  are already there in India now.
Risk Location/s should be properly mentioned

Huge indirect financial impact

  • Indirect costs of losses of Brand Value, share value & market value are much bigger than the actual Recall costs
Downloads
Proposal Form
Proposal Form  
Policy Wordings
Policy Wordings  
Claim Form
Claim Form  
Key Documents
General Claim Intimation Format
General Claim
Intimation Format
Immediate Action Client Should Take
Immediate Action Client
Should Take
Indicative General Documents
                            for Settlement of Claims
Indicative General Documents
for Settlement of Claims

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Claim Case Study - 1

1
Situation
Situation

The Food Authority (FSSAI) ordered Nestle India to withdraw all the variants of Maggi instant noodles from Indian markets throughout the country. Based on reports from all over India concerning the lead and monosodium glutamate (MSG) contents in Maggi Noodles. Nestle had to recall all Maggi noodle products from the market and burn the recalled Maggi noodles in concrete incinerators.

2
Challenge
Challenge

Economic Costs: Direct costs: Recall expenses - not quantified Rs. 320 crore worth of Maggi recalled & burnt Indirect impact (NOT covered by Insurance policy) Net profit for the FY 2015 (Jan- Dec) down by 620 crores Share value declined by 10% Market share in instant noodle market fell from 77% in January to 10% (later climbing to 42% in December 2015) the loss in Brand value at 1200 crores. Nestle India only had a CGL (Combined General Liability) cover which included Product Liability ( & not Recall liability).

3
Solution
Solution

After putting in place the necessary changes on the packaging, the company went for an all out aggressive marketing to re-align with its large loyal customer base. The tagline was “We miss you too” to help win back the lost market share.

4
Advisory/Conclusion
Advisory/Conclusion

1. Need of an adequate Insurance policy cover for Recall. 2. Correcting the flawed communication strategy of the company in the initial week/ten days to counter the charges being levied against the product.

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FAQ's

PREMIUM
COVERAGES
CLAIMS
OTHERS
  • Is the premium costs high?
    A better way to look at this would be to also consider the indirect impact of such an event on Brand value, Equity value & Market share etc. The Policy only covers the direct expenses of a recall & not indirect ones.
  • Deductible & Participation percentage?
    • Deductible is a specified fraction of claim that is to be borne by Insured for every claim.
    • Participation percentage is in addition to the Deductible & may be opted by the Insured to bring down premium cost.
  • Can I choose which expenses are to be covered here?
    It is advisable to include all expenses likely to be incurred in event of a recall.
  • Is there a Maximum Limit of cover?
    Each Insurer has a specified limit up to which he can offer policies. Beyond this limit they can issue policies with help of Reinsurance support.
  • What is the difference in Product liability & Product recall liability insurance?
    Product liability insurance covers a situation where the product with a manufacturing defect has been used & is the cause of a liability. However the Recall liability insurance covers the anticipated liability that may arise if a defective product is allowed to be used.
  • How is a Manufacturing defect relevant in the policy?
    The Recall policy is meant precisely for any anticipated liability arising due to use of a defective product. Liability arising due to any other cause is not covered in this policy.
  • What is the difference between 1st Party & 3rd party cover?
    Normally a Liability policy covers damages to 3rd party (i.e. other than Insured & Insurer). But in this policy the recall expenses have to be incurred by the Insured (1st party). Hence both are covered here.
  • Right to defend & Duty to defend?
    In any liability policy Insurer always prefer to have the final say on how a claim is to be dealt with. So they retain the Right to defend the Insured in any liability suit filed. But to make things clear - it is also said that this is an option to be used by the Insurer & is not to be taken as a Duty to defend the Insured. Insured has to take all reasonable steps to defend himself.
  • What is a retroactive date?
    It is the first date of taking a liability policy that is continued without a break. The “Period of Insurance” from this Retroactive date is the period within which the event requiring recall has occurred. Claims should  be lodged on the Insurer (in a Claims Made policy) within the current Policy Period.
  • Have any Indian Companies been involved in recall of a product?
    Maruti Suzuki has recalled some vehicle or the other every year beginning with 2010. The list of Pharma products recalled is much longer with every major Indian Pharma Co. like Sum Pharma, Lupin, Dr. Reddy’s, Torrent etc. involved.
  • Is there a system of statutory recall in India?
    Laws in area of Pharmaceuticals, Packaged food & Automobiles give the power to the specified legal authority to order a recall.
  • What is the difference between Territorial Limit & Jurisdiction Limit?
    A policy specifies the geographical boundaries (Normally within India) in which the Policy will operate.
    Jurisdiction limit specifies the laws which shall apply in case of a legal dispute (Normally Indian laws but in cases of Exports suitable changes can be made).

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