Product Recall Insurance Coverage
A product recall can have a crippling impact on your business.
In addition to disrupting the stream of commerce among manufacturer, distributor, retailer, or installer, these recall actions can severely damage a business’ reputation and become extremely costly. According to investment and insurance industry estimates, recalling an automotive product costs more than five times the original distribution, potentially leading to a devastating financial loss.
That’s why it’s important to understand the recall process and develop a plan to help your business deal with a forced or voluntary recall.
While OEM automotive recalls get the most headlines, the aftermarket is far from immune. Even a small product recall can and will have a financial impact on all parties involved—including distributors, retailers, and installers.
To learn more contact:
Franco Ganino
(800) 390-9099
FGanino@alliant.com
High Standards. Higher Stakes
As an automotive aftermarket product manufacturer, your business and your reputation are only as good as your products. However, despite your high standards, issues can arise that lead to reviews and investigations. The National Highway Traffic Safety Administration (NHTSA) has strict standards and investigates accidents and product problems constantly. If a pattern of failure is identified, a recall can be forced.
Product recalls are more common than you might think. In fact, Investopedia reports that the NHTSA calls for the recall of more than 200 each year. While OEM automotive recalls get the most headlines, the aftermarket is far from immune. Even a small product recall can and will have a financial impact on all parties involved—including distributors, retailers, and installers. Recalls can also lead to bad press, public relations situations, and in some cases additional litigation, all with hefty price tags. The costs can add up, and fast.
The Recall Challenge
Automotive product recalls can quickly escalate to involve tens of thousands and even millions of units at all stages of the manufacturing and supply chain. And although getting product off your own loading docks or production lines can be quickly executed, capturing inventory from distributors and retailers can be challenging. Add in the fact that consumers rarely fill out warranty registrations—meaning that it’s difficult to know exactly who has the products and where they are—and recalls can become a logistical nightmare.
Whether the cost is the burden of communication to the marketplace, the expense of product extraction, or supplying the remedy, the financial impact can be great.
Just think, even recalling something as simple as a set of rubber gaskets is complicated. First you need to stop production, inventory all products, and identify batches with defects. Then you need to contact retailers and distributors. Products need to be taken off the shelves at stores and warehouses, and some need to be re-routed mid-shipment. Customers need to be notified, often by mail, and compensation—frequently in the form of a refund or replacement product—is required. And that doesn’t even factor in the lost revenue and reputation damage. And if the product is deemed an immediate safety hazard, the situation can become even more costly.
Recall Response Planning
When faced with a product recall, the way you respond can determine if your business survives. If you don’t take the right steps early on, the financial and reputation damage can be permanent and devastating. If you are in the automotive parts manufacturing space, recall response planning should be a key part of your risk management toolkit, so that if a recall happens, you are not scrambling to catch up.
In addition to having a plan for contacting customers and getting recalled products back from retailers and distributors, insurance can play a key role in your recall response plan. Product recall insurance coverage can protect your business from financial loss resulting from a recall. Once you have a recall battle plan in place, including your communications strategy and logistical framework, it’s important to review it with your insurance provider, legal counsel, and third party risk management professionals. And as your business and product offerings change, it’s essential to regularly review your plan against current NHTSA standards to ensure that your plan covers all the required recall actions.
Recalls happen, but with the right planning and coverage in place, your business can and will survive.