Geopolitical tension and economic instability are among various issues that are complicating supply chains. As your supply chains become convoluted or strained, insurance becomes an integral part of risk management and mitigation.
However, siloed insurance policies, such as recall and stock throughput coverage, will only provide limited cover for transit and stock, creating gaps within insurance programmes. Mitigating these gaps by bolstering insurance coverage is a critical part of risk management for all businesses reviewing their supply chain exposures.
Product recall insurance
Product recall policies cover products from arrival to insureds’ control, all the way to consumer level. Generally, to trigger policies, there needs to be a threat of bodily injury due to either an error by the supplier, the insured, or someone acting on behalf of the insured. Common causes of this include contamination, mislabelling, or error in the production and manufacturing process, that renders products to be injurious to health.
Key indemnity cover from product recall insurance includes:
First and third-party recall costs
Replacement costs
Consultancy Costs
Brand rehabilitation
Business interruption and third-party financial loss
Stock throughput (STP) insurance
STP insurance, underwritten in the marine cargo market, provides uninterrupted and continuous protection for physical loss or damage. STP policies are typically sourced to provide consistent coverage for companies that import, export, and distribute goods on a local or global scale, as well as, enterprises that require large and spread-out inventory stocks to ensure uninterrupted production.
Key indemnity cover for STP policies includes physical damage to your product while in transit and/or storage covering:
Raw materials
Work-in-progress
Finished product(s)
Processing facilities
However, STP will not cover manufacturing defects or contamination caused by the manufacturing or assembly process itself.
Recall risks to businesses
Companies with inadequate coverage could encounter various repercussions, including:
Brand reputation
If a company has to initiate and/or mishandles a product recall or withdrawal event, their brand reputation could suffer tremendous damage, whether it be through cancelled customer contracts or drops in consumer confidence.Uninsured periods
Gaps in coverage between product recall and STP insurance policies, can render products vulnerable to losses during spells they are uninsured.Multiple policies
Difficult claiming due to dealing with different insurers, creating inconsistencies in terms, conditions, and deductibles.Slow recovery time
If a business suffers an uninsured loss or a protracted claims experience, business recover to normal operations could be exceptionally long.
Case study: ammonia leak in transit
A UK based organisation that produces ready meals had to initiate a costly recall after some of their products – stored at a third-party warehouse – were affected by an ammonia leak. The spoilage and contamination from the ammonia resulted in a customer rejecting produce they had received. And the subsequent lengthy and costly recall and investigation caused a loss for the company that totalled over £3 million.
Because the presence of ammonia constituted a bodily injury threat, the company had expected that associated costs would be covered by both their recall and STP polices. However, in this instance, it actually led to denials and claims issues from both insurers. As insurers pushed one policy onto each other, the resulting claims friction exacerbated the original issue – significantly delaying the company’s recovery efforts.
Lockton, through proactive market research and client discussions, helped to devise a solution to this known, and costly, market circumstance: SupplySure.
Introducing SupplySure: our new product to close insurance gaps
SupplySure, Lockton’s new innovative insurance solution, provides a response to changing global logistics dynamics by issuing bespoke coverage for physical loss or damage to your product throughout your supply chain, whether in transit, during production, or safely stored.
SupplySure is designed to bridge any gaps in coverage of multiple insurance policies which are conventionally placed independently from one another.
How can clients benefit from SupplySure?
Improved risk mitigation through broader coverage and integrated consultancy
Premium savings from bundled underwriting
Increased claims efficiency
Aligned coverage from raw material straight to consumers
A smoother placement, with minimal nuances
To learn more about SupplySure, reach out to a member of our Product Recall Team (opens a new window) or Marine Cargo Team.
