As safety regulations receive heightened scrutiny from government bodies, Willis Temby urges businesses to review their product suite for potential exposure to faulty products and expand their understanding on how product recall insurance can help manage risk.
Product recalls can occur for a variety of reasons, from accidental contamination to mislabelling errors, faulty equipment and product defects.
For the 2024-2025 period, the Australian Competition and Consumer Commission (ACCC) reported a 17% YoY increase in initial product safety reports. Reportedly, almost 800 Australians die each year as a result of unsafe consumer products, with a further 52,000 hospitalised and an estimated economic impact of over $5 billion.
Unlike most OECD countries, Australia does not have a general safety provision that prohibits the sale of unsafe goods. Instead, we operate on a largely reactive basis, through support of the ACCC, FSANZ and Department of Infrastructure.
This approach creates a unique exposure for Australian businesses; products can enter the market before safety issues are detected, leaving suppliers and businesses liable to manage costly recalls.
Product recall risk does not sit in one place. It can arise at any point across the supply chain, from raw materials and component manufacturing, through assembly, labelling, transport, storage, and ultimately to the shopfront and end consumer.
Product recall insurance is designed to help businesses manage the financial and operational impact when issues arise anywhere along this chain.
Does product liability insurance cover product recall costs?
While general insurance or product liability insurances typically aid in legal defence costs arising from injury claims and protect against bodily injury and/or property damage, including those resulting from a faulty product, they do not support the expenses directly resulting from a recall.
In complex situations, businesses are often exposed to recall costs long before responsibility or cost recovery can be determined. Product recall insurance should be considered a vital element of your businesses’ insurance coverage, as it helps to close this gap.
What does product recall insurance cover?
Product recall insurance can aid in covering essential costs resulting from recalls for products that are withdrawn due to safety defects, concerns or regulatory issues.
It can provide support for essential recall costs, including:
Relabelling or repackaging
Redistribution costs
Recall logistics and withdrawal expenses
Notification costs
Disposal of affected products
Product replacement
Depending on your insurance, coverage conditions and exceptions may apply. For assurance that your coverage meets your expectations, reach out to one of Willis Temby’s trusted brokers.
Does product recall insurance cover relabelling or repackaging?
Where a product has been recalled due to regulatory or critical safety reasoning, product recall insurance is likely to cover relabelling or repackaging. It is an essential cost to protect consumer safety.
If relabelling or repackaging for aesthetic or branding purposes, a typical recall insurance product is unlikely to cover costs.
Does product recall insurance cover overseas recalls?
If you are supplying products overseas, it is vital you inform your insurance broker so they can arrange suitable cover or create a solution to best meet your needs. Overseas recall coverage is not a standard inclusion.
The part in my product is manufactured elsewhere, am I responsible for the recall or is the supplier of the product?
In most cases, the company that presents a completed product to the market is responsible for any recall, even if a defective component was manufactured by a third party.
While defects may originate offshore or with third-party suppliers, Australian regulators will look to the last-touch entity – the brand owner, importer or distributor – as the liable party responsible for initiating and managing the recall.
Your purchase/supply contract should outline the party responsible for recovery costs, including warranties and indemnities. Recovery costs from the supplier may take time to resolve and should not impact your ability to recall products as soon as possible.
How do I protect my business against product recalls?
Ensuring your business has visibility, control, and protection across its supply chain is critical to managing recall risk and responding quickly when issues arise. The following will help to protect your business and limit liability:
Engage product recall insurance, to support your existing insurance solution.
Maintain product traceability, including batch and lot numbering.
Enforce strict quality control and testing where possible.
Conduct regular supplier audits and documented compliance checks.
Prepare a recall response plan, including logistics and media management partners.
In an environment of heightened scrutiny and globalised supply chains, managing product recall risk requires more than compliance, it requires preparation, visibility, and the right insurance support from supply chain to shopfront.
As specialist insurance advisors, Willis Temby works with Australian businesses to assess recall risk across complex supply chains and structure product recall insurance solutions aligned to regulatory and commercial exposure.
For guidance, contact with our product recall insurance experts Alex Rowland, Cameron Gasper or Haidee Moore.