Product Recall

Why Product Recalls Are Costlier Now than Ever Before

December 15, 2016

By: David Fiske – Senior Vice President, Worldwide Facilities  

No matter how you look at the data, companies across all sectors are more at risk for product recalls than ever—and the cost is rising. In 2014 alone, the National Highway Traffic Safety Administration (NHTSA) issued $126 million in fines—the most in its history.

There are a few key reasons why product recall risks and costs have been going up. These include:

Better testing

The methods and technologies used to identify contaminants, packaging problems, and other issues are much more sensitive than they used to be. There is a bigger risk than ever that inspections will pinpoint a problem, increasing the risk for recalls.

Stronger regulations

Government agencies have more power these days to issue recalls and sanctions than in prior years. Some of the new developments introduced over the past five years include:

  • The Food Safety Modernization Act (FSMA 101). This act requires careful documentation of manufacturing, packaging, and food safety processes. It also gives the FDA more power to insist on recalls for misbranded or contaminated food. 
  • The Office of Pharmaceutical Quality (OPQ). This new organization, introduced in 2015, is dedicated to improving the quality of pharmaceuticals, and the rigorousness of inspection programs, both domestically and internationally. 
  • The Vehicle Safety Improvement Act. If this law passes in Congress, it will broaden public access access to information regarding vehicle defects and recalls, as well as increasing the size of NHTSA fines companies are subject to.

More complex cases

In the past, recalls might be limited only to a certain region. Today, global companies have global product recalls. This is especially true in the pharmaceutical and medical device industries. In the event of a recall spanning international borders, companies risk falling afoul of complicated and frequently-changing international rules; this increases the cost.

Improved awareness and media attention

Consumers are more informed about recalls now due to greater connectivity over social media and search, as well as recall alert services. This means the public relations consequences for companies dealing with recalls is even more devastating than it used to be.

In today’s environment, insureds need product recall or product contamination insurance in addition to general liability coverage. The products that address this type of risk must be custom-built to serve each insured’s individual needs, and many retail insurance agents work with wholesale brokers who have specialized expertise. New advancements are happening every day—and it’s essential to have the right team in place to be prepared.

For more information contact David Fiske at dfiske@wwfi.com or (312) 465-5305.

 

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