Every product comes with its risks, especially in the food industry. The food industry is creating millions of products daily. Therefore, various food product risks could be dangerous to the member of the public. Threats could include undeclared ingredients (allergies), untested ingredients or even material contamination (e.g. glass). Therefore, the food industry has to be extra careful when producing, packaging and distributing products. In addition, each product needs to clearly inform the user exactly what they are putting in their body.
Although like any industry, mistakes happen and could harm the end consumers. Even the most minor mistakes can result in lawsuits and significant financial loss. Therefore, products need to be taken off the market as soon as possible when things go wrong. This case study will explain how product recall insurance helped a food brand save nearly a million due to contamination.
Client Background
Our client is a Hong Kong sauce brand that distributes its sauces all over Hong Kong and other Asian countries. One of their popular product is their organic soya sauce. They take pride in their organic ingredients and environmentally friendly packaging.
When distributing to various stores in different countries, there are more risks. The brand is responsible for ensuring the product contents are accurately described on the labels and safe. These details help avoid allergic reactions and dangerous medical outcomes. Especially when it is an organic sauce, the ingredients need to be tested and truly be organic. If the product affects any consumer, the brand will be responsible for the outcome, and the business will have to pay for the medical compensation.
Additionally, the brand will be liable to pay product recall costs after recording a product defect. A product recall is an act of removing a batch or production run of products from the marketplace. Such situations can ruin a business financially and negatively impact the brand image.
Client Problem-The Need for Product Recall Insurance
The problem began in the kitchen, where various sauces were being made and bottled. When packaging sauces, employees have to be very careful – as many sauces look alike in colour but include entirely different ingredients.
The soya sauce is a 200ml glass bottle with all organic ingredients. Unfortunately, An employee accidentally contaminated the contents with fish sauce (undeclared ingredient). The business did not notice the accident, and managers sent the batch to the various distributors in each country.
The problem and threat were bought to attention quickly when customers complained to distributors that the product had a very fishy smell and did not taste like soya sauce. The distributors sent the information immediately to the brand. As a result, all distributors had to take the products off their shelves. The batch included around 3000 bottles distributed in 5 countries. Fortunately, the business took action instantly, and the customers who had bought the product did not have any seafood allergies. However, the situation could have been much worse and could have possibly killed a consumer due to allergies.
The brand was liable for providing product recall expenses to distributors to send back the product to the main factory. Additionally, the brand had to also advertise and communicate to customers worldwide about the situation and inform them about the product recall. The brand is also responsible for safely disposing of the product. Finally, The sauce company would also have had to pay legal and medical compensation costs if the customers sued the brand.
How Product Recall was the Solution?
The severity of the impact was reduced, as the sauce brand had purchased product recall insurance. Product recall insurance covers expenses related to recalling a product. Businesses typically purchase product recall insurance with product liability.
Furthermore, many companies believe product liability is enough when dealing with products, which is not the case. As product liability will not pay for any recall costs or brand damages. These two insurance together can avoid almost all risks associated with products. Product recall insurance provides funds for recalling, replacing, and destroying defective goods.
Therefore, Product recall insurance provided the following expenses:
- Recall And Transportation Costs: HK$ 250,000
- Advertising Cost/Communicating to Customers: HK$ 50,000
- Replacement Costs: HK$ 210,000
- Disposable Costs: HK$ 20,000
- Brand repair costs (PR): HK$ 120,000
Total Costs: HK$ 630,000
Without insurance, these costs could have ruined the business, and may not have recovered from his situation.
Conclusion
Providing food products are full of risks, including food served and taken away from restaurants. For example, product contamination can cause severe illness or death if one is allergic to an unlabelled ingredient. As you can tell, product claims can occur from anywhere, and it is crucial to be protected with product liability and product recall insurance.
Additionally, recalling products can be even more costly and damaging. Product recall insurance in the food industry helps cover when a business wants to stop selling to more consumers and increasing claims. Product recall insurance makes it possible to recall products quickly without worrying about recall-related costs.
In conclusion, the right combination of product liability and product recall insurance can help a business avoid almost any product risks and claims.
To Learn More about Product Recall Insurances and get the best protection for your business against product risks, contact Red Asia Insurance.
