product recall insurance - Hong Kong brands

Most product companies always keep consumer safety as the number one priority when releasing products. Products include food, medicine, toys, clothes, jewellery, etc. Basically, anything tangible is a product manufactured by a business for a purpose.

Businesses invest a large amount into each product, from design to manufacturing to distribution. But what if the thousands of products manufactured are all defective? A defective product can be dangerous to the public and can cause serious injuries or property damage.

When an entire batch of products is defective, the business responsible must recall all products sold. Product recall is challenging, especially when the product has been sold to millions worldwide.

Hence product businesses need product recall insurance. The article will explain the main reasons every business should purchase product recall insurance and how it is crucial for the product industry.

What Is Product Recall Insurance?

Recalling products commonly occur when the product causes damage to a consumer or breaks product regulations. 

Businesses should have product liability insurance when designing, manufacturing or distributing products. Product liability insurance will only cover the cost of claims due to products causing third-party damage but will not cover the costs related to recalling the products.

Product recall is the action of removing a defective product from the market; this includes the products on the shelves and the products sold. Hence companies need product recall insurance in addition to product liability insurance.

Product recall insurance will cover most costs related to the recall, which includes communication, shipping, storage, disposable and reputation costs.

Additionally, most policies only cover if the product is at risk of causing injury or property damage. The insurance will not cover any recalls because the product just isn’t working.

Reason to Purchase Product Recall insurance

Mass Product Defects Possibility

Product defects could affect any product business worldwide. A product defect could be due to the design, manufacturing or failure to warn. If a product causes injuries to a consumer, it will be investigated to determine the cause. Sometimes the defect could be in just that single product or the entire product batch in the market.

product liability- defect

A product recall must be quick when the investigation proves all the products are defective. These defects could be accidental ingredients in food, toxic material, misprint error or anything that could be unsafe to the users. A quick recall can prevent a large number of consumer damage and lawsuits.

For example, a vegetarian food product in Singapore was recalled as the packaging forgot to mention the product included gluten (an allergen). When an ingredient isn’t declared (even if it is obvious), it can cause customers serious illnesses or even death.

The smallest mistake could lead to a necessary product recall, and no business is safe. Even the slightest possibility of product defect and recall is the main reason to have product recall insurance. Having the insurance can make the worst recall situation easier to deal with professionally.

Government Regulations 

A mass product defect report can bring attention from the government. The local government can interfere during the investigation and product recall process. If the product recall is not carried out in time, the government may fine the business and take legal action.

Product insurance Hong Kong- Government Regulations

In some countries like Hong Kong, a company should have a recall procedure before releasing the products like medicine and food. Businesses must follow local product recall guidelines to avoid breaking government regulations.

Product recall insurance is a great advantage in proving the recall is covered. The insurance will ensure the company can follow regulations and assist with the recall process. The insurance will help a business follow the product recall regulations effectively and efficiently for the public’s safety.

Initial Recall Costs

Product recall is extremely expensive for any company. Companies must pay several costs to ensure all products are out of the market and there is no chance of future risks.

eco-friendly products - insurance coverage

The expense can range from 100 of thousands to millions – depending on the product and company. These initial costs include advertisement costs to inform the public about the recall and logistical costs (shipping costs). Each customer should know about the defect and be sent the funds to return the product to the business. The charges arise more when the products are large and sold worldwide.

For example, in 2021, Hyundai had to recall 82,000 electric cars internationally to replace the batteries after 15 cases of fires involving the vehicles. The recall expense was around 1 trillion Korean Won (USD 900 million) – USD 11,000 per car.

Product recall insurance will cover these costs (with limits). The financial coverage is crucial for businesses, especially smaller businesses. The insurance can save a company from going bankrupt or suffering severe financial loss. The insurance allows companies to inform the public and guarantee the product is off the market successfully.

Additional Post Recall Expenses 

It’s not the end, even after products return to the location. There are many other responsibilities a company has after the product recall. The business is liable for storing and disposing of defective products. Unfortunately, these costs are not cheap either.

car brands - Hong Kong Disposable- Product Recall

Product disposable is one of the most expensive costs during a recall. The disposable has to be environmentally friendly and done through expert companies. Additionally, when products return, warehouse employees may need to work overtime to organise and store. Therefore the product firm must pay additional warehouse rent, product disposable and overtime fees.

For example, the Hong Kong disposable cost for a TV or refrigerator product is 165 HKD per unit. Hence if a business manufactures 10,000 units, the total disposal cost will be HKD 1,650,000.

All the costs can add up to a considerable amount, including the initial recall costs. The financial support is a strong reason for businesses to have product recall insurance. The insurance will cover storage disposable and employee overtime costs. Product recall insurance can make the post-recall process much easier and feasible.

Brand Protection 

When a business declares and advertises one of its products has a defect, a negative reputation spreads in the market. No matter how small the defect, the company may face a brand image and sales drop.

Product Liability Insurance - global brand

Businesses must put in more effort to rebuild their brand image to what it was before the product defect incident. These efforts include promotion deals, public relations strategies and innovative plans to increase customer relations. Reputation management efforts can begin during and after the recall incident.

The expensive cost of reputation management and protection depends on the product, brand and defect details. However, the expenditure is essential to recover from the incident and come out stronger.

Fortunately, product companies can add reputation protection coverage to their product recall policy. The insurance will cover most rehabilitation costs and financial loss due to sales drop. However, each policy may differ, and managers must question the coverage. The coverage is great for recall incidents and can positively finance brand rebuilding.

What Businesses Need Product Recall Insurance?

No matter how careful the product process is, accidents may occur. Faulty machinery, human error, or even damage in transit can result in defective products. The product recall process is stressful, but at least insurance covers the finance.

All product businesses should purchase product recall insurance. Each product industry has its own risk and unique defect possibility. Therefore if your company is involved in the food, medicine, chemical, technology, automobile or even fashion industry – your business needs the insurance.

Additionally, insurers can customise the insurance to best fit your industry risk. Product recall and product liability insurance can help a business recover from a product defect crisis and focus on improving products. 

Purchasing insurance before releasing goods into the market may save your business from millions in loss.


To Learn More about product recall insurance and get the best protection for possible product recalls and defects in Hong Kong & Asia, contact Red Asia Insurance.