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With new legislation being put into place by the US government, small businesses need to be more cautious than ever in regards to their stability in the marketplace. Kenneth Hegel of Cosmetic Insurance Services (CIS) discusses the importance of insuring your products against product recalls. Interested in learning more about this protection against legislation changes? Mr. Hegel is on the Board of Directors for ICMAD- the International Cosmetic Manufacturers and Distributors. In conjuction with the Professional Beauty Association and the Personal Care Products Council, ICMAD will be at Cosmoprof North America to discuss the efforts that the three associations are making against regulation changes on Monday, July 23rd. This conference is complimentary to all attendees.

Cosmetic & Personal Care Companies today are faced with many interesting and unique challenges. Some of these challenges are newly emerging based upon a wide array of variables. Whether it is the expansion into global markets, governmental interventions, or manufacturer error, today’s cosmetic industry companies are presented with exposures to risk like never before. One of those newly emerging risks is the threat of a product recall.
The exposure and occurrence of a government mandated or manufacturer recall is very real. ‘Product Recall Expense’ coverage is simply an excellent risk management tool that companies need to seriously consider when reviewing their current insurance portfolio.
Product Recall insurance provides protection for a company in the event they must recall any of their products. Coverage can include product recall expenses and liability to third parties seeking damages because the product recall could cause a loss of income or damage their reputation. If the product poses an imminent threat or danger of either property damage or bodily injury, Products Recall Coverage should respond. It will respond to both voluntary and involuntary (government or 3rd party-imposed) recalls where coverage is applicable.
Product recall or withdrawal is necessary when your product is deemed to have or suspected to have a defect that will potentially cause bodily injury or property damage. The determination that a product needs to be recalled can be made by the insured or a government entity that has ordered you to withdraw your product from the market place. The instances of “government imposed” product recalls are on the rise. For those of you who have questions regarding how often this happens or why you should consider purchasing the coverage, I would encourage you to visit www.recalls.gov and view both the industries and products similar to yours that have experienced a product recall. As globalization continues to evolve and expand—it is fair to say that the instances of “government mandated” product recall actions will continue to rise. In my opinion, you are more likely to experience a sizeable product recall claim then you are a products liability claim.
Products recall expenses can include the following:

• Cost of hiring independent contractors and other temporary employees
• Costs of transportation, shipping or packaging
• Cost associated with notifying customers
• Shipping Cost
• Extra warehouse and storage expense
• Actual cost to dispose of the products
• The cost of extra personnel required to conduct the recall
• Loss of profit on the products that were recalled, etc.

A fact worth pointing out is that products recall coverage is readily available. The cost of this important coverage has come down substantially over the years and there are more insurance companies offering the coverage with some enhancements that make the coverage extremely broad and therefore attractive. Also; more product liability insurance carriers are starting to offer product recall expense endorsements to their product liability policies. The great thing about these add on endorsements are, they provide some product recall expense coverage at a much lower price as opposed to a small business having to purchase a stand-alone or individual product recall policy on its own. Considering the facts mentioned above, expansion of products sold into foreign markets, increased government and regulatory action, availability of the coverage at a competitive price—it is clear products recall coverage is a coverage we all should consider.