Is it a product recall or withdrawal

Have you ever considered the difference between a product withdrawal and a product recall? 

They sound similar but are in fact very different events, especially when it comes to insurance coverage.  

Historically, insurance for voluntary product withdrawals has been out of reach for small manufacturers and distributors. 

This is now changing, and policies that cover both types of events are now available in Australia.

WHAT IS A PRODUCT RECALL?

A product recall occurs when products are removed from sale because of a significant health or safety threat.

Senior Claims Specialist James Paul, at Liberty Specialty Markets, explains that one of their clients recently went through a recall of spring rolls manufactured in China. During the production process, vegetable oil was substituted with peanut oil. 

The client was not made aware of the substitution and the product label did not include peanut oil, a known allergen which can harm people. As a result, the product had to be recalled and the policy was triggered.

TAKING IMMEDIATE ACTION

Once a food or beverage manufacturer becomes aware of a confirmed contamination of one of their products, they must immediately notify Food Standards Australia New Zealand and contact supermarkets to have them recall the product from sale.

‘Liberty’s product recall insurance can cover a range of costs including taking the product off retailer shelves, restocking costs, notifying customers, warehousing, shipping and disposal costs,’ says Paul.

‘For a small manufacturer of a specialty food item stocked in a supermarket chain, a recall can jeopardise the financial viability of that company. Having insurance protection can be the difference between being able to continue to operate and being forced to close their doors.’

PRODUCT WITHDRAWAL

A product withdrawal occurs when a product is removed from sale because of quality-related factors which have no potential to injure consumers.

Examples include a cake missing an ingredient, or a manufacturing error such as incorrect baking temperature affecting the look or taste of a product. 

It might be a product labelled with an incorrect weight, or a carbonated drink that turns out to be flat.

These are often factors that could impact the reputation of a product if it were sold to consumers, but wouldn’t cause injury or harm.

A FAULTY LID

For instance, another Liberty client is an experienced yoghurt manufacturer who received a phone call from a retailer that stocked their product, and who subsequently advised that the yoghurt had a faulty lid that wasn’t closing correctly. 

There was no likelihood of any consumers becoming ill, but the retailer chose to withdraw the product from its shelves. The yoghurt manufacturer received retailer charges associated with the affected product withdrawal.

Paul flags that product withdrawals occur more frequently than product recalls, and costs can easily exceed $50,000 for a product that is stocked widely across Australia by one of the major supermarkets.

‘Product withdrawals can be tricky to navigate, as views on whether to activate a withdrawal can differ,’ says Paul.  

‘In a product recall, it is invariably obvious that goods must be recalled due to safety. In a product withdrawal there is no safety risk element, so it’s really about reputational damage and the manufacturer and stockist can often disagree on the appropriate next steps.’

AN IMPORTANT DIFFERENCE

Product recalls and withdrawals occur for different reasons, but both can be expensive.

The distinction becomes particularly important when it comes to insurance.

‘While insurance to help mitigate the costs of a product recall is readily available, not many insurers also offer coverage for a voluntary withdrawal,’ says Paul.

'This can leave food manufacturers vulnerable to the subsequent financial impact a retailer withdrawal can do to their business.’

Liberty offers small to medium sized manufacturers and distributors the option to cover both events in one insurance policy. 

CONSIDERING COVERAGE

Liberty’s Food & Beverage Insurance Policy is a recall cover specifically tailored for the food and beverage industry. 

Designed to address both product recalls and withdrawals, it helps to protect manufacturers from the risk of contamination and the need to withdraw their product due to a manufacturing error or quality control issue.

‘There is generally quite widespread awareness amongst food and beverage distributors and manufacturers about the value of product recall insurance, but consideration of voluntary withdrawal insurance is much lower, despite the fact that voluntary withdrawals occur more frequently,’ Paul says. 

'Insurance brokers can help guide manufacturers and distributors on both aspects of their exposure when they put together their insurance program.’

LIBERTY PRODUCT RECALL MONITOR

If you are interested in learning more about product recalls in Australia, view the latest Liberty Product Recall Monitor. 

It is produced twice per year, and summarises recent recalls that have taken place across a broad range of consumer products, including food and beverage, homewares, small electrical appliances and babies/kids toys.  

The broad range of products that have been recalled due to a health or safety threat is considerable.