Product Recall

White Paper

Humans in the manufacturing process, regulatory standards increasing, product safety rules increasing, and more stringent product quality obligations are just some of the reasons that Product Recall coverage should be considered by commercial insurance buyers.  Product Recall insurance is a unique coverage that reimburses for the financial loss incurred during the recall process.  

Product Recall coverage has two parts to its policy form, First Party Expenses, or the expenses of the entity, and Third Party Liability losses associated with your client or vendor.

First Party Coverage provides reimbursement of the following direct expenses associated with your organization's product recall:

  • Cost to notify customers
  • Cost to withdraw products from the market place
  • Extra warehousing, storage expenses along with shipping
  • Disposal costs to destroy product
  • Additional cost for overtime or hiring additional employees to conduct recall

Third Party Coverage insures the damages a client or vendor sustained due to the recall of your product. Costs could include:

  • Recall expenses for the third party, your client, for the recall of your product that is incorporated as part of their product or the cost to repair or replace your client's product impacted by the recall
  • Business Interruption losses of others resulting from the recalled product
  • Cost to repair or rehabilitate the brand reputation
  • Additional costs to purchase substitute products to replace your products

Third Party exposures are more difficult to identify and quantify since they are out of the firm's direct control.  However, it is important to include these expenses as it will impact your clients' loss of profits and expenses and helps to maintain the relationship between clients and vendors.

In preparation of a Product Recall, the follow should be created prior:

  • Designated product recall team
  • Written recall plan
  • Strategy for communicating with the Media

The average cost of a product recall is $540,000: Consideration of an insurance policy to reimburse these costs should be a priority for all firms.  Additionally, most Product Recall policies provide access to a Crisis or Public Relations management firm to assist in maintaining the good name and viability of your organization. These are just some of the reasons that Product Recall coverage should be reviewed as a positive enhancement to every risk management program.

Kirk Gilleland - Senior Vice President - Property & Casualty 

Kirk Gilleland has more than 20 years of experience in M&A due diligence, risk assessment, cash flow analysis, and property / casualty underwriting.  Prior to joining Equity Risk Partners, he was a Practice Leader, Mergers & Acquisitions Risk Management for AHM Financial Group. Mr. Gilleland served the needs of private equity, leveraged buyout and venture capital firms for risk management due diligence, insurance brokerage and cost of risk consulting, as well as sourcing of buy side and sell side engagements. Mr. Gilleland spent more than 10 years Hartford Insurance, Marsh & McLennan and Aon Risk Services in similar capacities of increasing responsibility.

Mr. Gilleland holds a BA - Business Administration from Lake Forest College.

Contact Information: 
Phone: (415) 874-7108

Michael Marcon - President, HUB International and Founder, Equity Risk Partners

Michael Marcon has more than 30 years of insurance experience, pioneering the delivery of insurance due diligence to private equity firms and specializing in alternative risk financing and transactional insurance products. Before launching Equity Risk Partners, Mr. Marcon was Executive Vice President of Aon Risk Services - Mergers and Acquisitions Group and he was instrumental in creating the Private Equity practice for Aon's predecessor company, Rollins Hudig Hall. He served as Regional Manager - Finance for Transamerica Corporation, as well as positions in Special Risk Financial and Capital Management for CIGNA Corporation. 

Mr. Marcon holds an undergraduate degree in economics from Ursinus College (where he was the former chairman of the board of trustees) and an MBA in finance from Drexel University. Mr. Marcon tweets from @mcm7464 and can also be reached through his blog, Michael Marcon Tweets, where he writes about business, tradition, and life. 

Contact Information:
Phone: (415) 874-7101