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Dec 19

Product liability and product recall insurance: what’s the difference?

Many of our clients in China, Hong Kong, and Singapore have difficulty understanding the difference between product liability and product recall.  These are two very different insurances meant for covering specific risks.  Let’s take a look.

 What is covered?

1. Product liability – This covers the claim and suits arising from a defective product that a company has manufactured or sold. Read more about product liability here.

2. Product recall – This covers not just the cost of recalling the faulty products from the market, but also all the direct expenses the insured may have faced in such an event (cost of notifying customers, storage, etc.). Product recall can also be extended to cover business interruption losses or brand reputation/rehabilitation expenses.

 What will trigger such a policy?

Product liability will only be triggered following property damage or bodily injury caused by a faulty product. Without direct losses to the third party, no refund can be expected from product liability insurance.

Product recall needs to be triggered by a product liability claim in order to reduce further accidents and reduce the risks. Product recall can also be triggered without the occurrence of a product liability claim if the government of a country decides, for sanitary reasons, that a particular product is unfit for the market. Hence it is necessary to carefully check the clause of the contract.

 Requirements of most importers

In today’s business environment, most importers based in the USA or EU require in their contract, a product liability insurance as this is imposed by their own insurance policy. However, this requirement does not necessarily extend to the product recall policy. It is more difficult (and expensive) to get a quote for product recall as the implications can prove very costly for insurers. Most insurers will have a minimum premium for this kind of policy. Also, matching the limits required by importers might be very tough especially when the sales volume is not high.

Before signing any contract mentioning this type of insurance with your clients, make sure to contact your insurance intermediary to be fully aware of the cost of such policies as it can significantly reduce the financial benefits of the deal.

At Clema Risk Solutions, we can help you find solutions to meet your business requirements. Contact us at hello@clema-rs.com if you have any questions regarding business insurance, or product liability insurance and product recall insurance in particular.

To find out more about our various insurance solutions for SMEs, please visit our website. 

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