Product recall and INSURANCE

Home > Business > Business Headline > Report Product recall? Firms rush for insurance Freny Patel in Mumbai | October 25, 2004 09:37 IST The European Union has forced 61 Indian companies to recall food products that were exported to the EU, on the ground that the products were contaminated. As a result, Indian pharmaceutical, automobile components and food manufacturers are rushing to take insurance cover against product recall, according to Aon Global Insurance Services Executive Vice-President (corporate broking) Andrew Clarke. He declined to reveal names, but said interest in such insurance policies had increased over the past year. "There is an increasing awareness among Indian manufacturers of the liabilities they face, especially when exporting to the US, the EU and Australia, which are increasingly litigious," Clarke added. India was not alone on the list of manufacturers that the EU has issued notices to on grounds that their food products were contaminated -- China topped the chart with as many as 147 EU notifications. India ranked ninth on the EU list. But with exports booming, Indian products sold overseas are increasingly being exposed to the threat of product recall. This could cost a company millions of dollars. "In the automobile industry, the cost can be as high as $250 million for recalling one's product, considering transportation charges, advertising costs, storage facilities, the need to inform distributors and so on," Clarke said. This is because the average time taken for recall is 250 days, and the daily cost of recalling an automobile model is about $1 million. Should an Indian company supplying auto parts be held responsible, part of the cost can be passed on to component manufacturers. Still, the liabilities can be awesome. According to Clarke, when 6.5 million tyres were recalled from the market, it almost put Bridgestone out of business. In September, Toyota recalled 646,000 vehicles, of which 470,000 were outside Japan. Similarly, Honda and Hyundai were forced to recall their vehicles sold in over 40 countries. Product recall risk cover helps protect the Indian company's balance sheet and brand against such liabilities, notes Praveen Vashishta, CEO and managing director of Howden India, the insurance broking entity.

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