PRODUCT CONTAMINATION INSURANCE

KEEP YOUR BALANCE SHEET SOUND OVER THE LONG TERM

Manufacturers can be obliged to prevent risk to consumers by taking a product off the market temporarily or permanently for a whole variety of reasons. The food, drink, tobacco, cosmetics and pharmaceutical industries are especially at risk of their products being contaminated. Incidents are becoming more and more frequent today, attracting media attention and so becoming matters of public knowledge. Quite apart from the loss of revenue and the costs incurred in recalling the goods, manufacturers also suffer serious damage to their image. A distinction is drawn between the contamination of products by accident or through negligence (APC) and their contamination through a deliberate and malicious act (MPT):

EXAMPLE 1

ACCIDENTAL PRODUCT CONTAMINATION (APC)

An international drinks manufacturer was obliged to recall fifty million bottles of mineral water in the USA alone after tests revealed trace amounts of benzene in the water. Media reports brought the incident to the public’s attention, with the result that global sales of 1.2 billion bottles dropped by half a billion in the next financial year. The company’s mineral waters division sustained a loss amounting to over a billion Swiss francs.

EXAMPLE 2

MALICIOUS PRODUCT TAMPERING (MPT)

A few years ago, there was an increase in the number of incidents of extortion in which manufacturers of sweets received threats from criminals that their products would be injected with cyanide. Over thirty companies received such threats, and the whole industry saw its sales fall at once by over 40 percent; at least five firms went bankrupt, and the criminals were never caught. The companies were very hard hit financially by the costs involved – not only the costs of the recalls themselves, but also those incurred in rebuilding customer confidence and image generally.

A manufacturer’s obligation to constantly check that their products do not put anyone in danger is a principle stipulated by law. However, conventional general third-party liability insurance covers manufacturers only when it is already too late and persons or property have already been injured or damaged. If a company is obliged to recall a product from the market to prevent that happening, a clause in its thirdparty liability policy is of little use. How, then, is a company to insure against costs incurred in the event of product recall or in the prevention of possible damages? Product Contamination Insurance is the answer.

Product recalls are a risk for small and medium-sized business as much as they are for big companies if they are engaged in the preparation, manufacture, processing, mixing, packaging, distributing or marketing of products. Industries particularly at risk include food, drinks, household goods, tobacco, cosmetics and pharmaceuticals.

PRODUCT CONTAMINATION INSURANCE COVERS RECALL COSTS FOR:

• Announcing the recall in the media and in mailings
• Transport of the recalled goods as well as of the employees working on the recall
• Rental or leasing of additional storage capacity
• Proper disposal of unusable packaging and marketing material
• Tests and chemical analyses
• Redistribution of recalled and restored products

LOSS OF PROFIT (SHORTFALL IN GROSS PROFITS)

• Shortfall in profits (difference between sales and variable costs) resulting from downturn in sales during the twelve months following the insured event

REHABILITATION COTS

• Returning insured products to saleable quality
• Appropriate expenditure and effort required to restore turnover in insured products to its previous level

ADVISORY COSTS

• Fees for consultancy firms, security, PR, or recall advisors (advice on prevention)

• Insurance covering own and third-party recalls
• Worldwide insurance cover
• Cover for costs of advice on securit y and prevention
• A useful complement to general third-party insurance
• Insurance covering loss of profits and rehabilitation and reputation costs
• Insurance cover individually adapted to your business’ product range