Each year, U.S. federal regulatory agencies announce thousands of safety recalls involving such diverse products as toys, electrical and electronic products, fire sprinklers, household appliances, recreational products, motor vehicles, foods, drugs, cosmetics, and medical devices. The Consumer Product Safety Commission (CPSC), for example, announced more than 350 recalls in 2004 and the National Highway Traffic Safety Administration announced about 500.

In addition, these agencies are implementing regulations affecting the tracking and reporting of defective products, as well as imposing increased fines for failure to report problems in a timely manner. In fact, since October 2002, CPSC and the courts have assessed nearly $13 million in penalties against 20 companies for violating statutory reporting requirements. A recent $4 million fine for a juvenile products manufacturer represents the largest to date.

Yet regardless of how common product safety recalls, regulations, and fines have become, many companies fail to adequately prepare for them. Consequently, they are ill equipped if a recall becomes necessary.

A product recall can devastate a company's brand name and profitability. No matter what its size, industry, location, or reputation, a company can be left in ruins if it does not manage a product recall well. To minimize the costs and mitigate the risks associated with such an incident, companies must proactively assess and manage their product recall risks.

A complex array of issues must be managed in a product recall, ranging from accurately determining the scope, nature, and extent of the loss, to the applicability of insurance policies, to managing regulators and the consuming public. Marsh's Global Product Recall Solutions and Prevention Practice works with clients to quantify potential exposures, analyze resources available to respond to such risks, and ensure that the proper solutions are in place to optimize insurance recoveries and limit the financial and reputational impact of a product recall. Marsh’s consultants also assist clients in developing methodologies to help them avoid product recalls.

Assessment

Marsh's consultants assist clients in analyzing their preparedness for a product recall, as well as their vulnerabilities -- including bio-terror and container security -- that could lead to a product recall. They help clients to evaluate their insurance and risk management, quality assurance, product-loss accounting procedures, regulatory compliance, supply/distribution chain, and the legal and communications resources available. Following such an assessment, the team recommends measures for improving a company's readiness for a product recall.

Implementation

Whether as a follow-up to the preparatory assessment stage, or in the midst of a product recall, Marsh's consultants provide a wide range of consulting services to help companies overcome the challenges they face and move ahead with their regular course of business. During the recall phase this can include:

• assessing the scope of the recall;
• identifying affected product(s);
• investigating the cause of the problem;
• reviewing relevant insurance policies;
• assessing compliance with government regulations -- for the company and its suppliers;
• timely management of recall and replacement efforts;
• accounting for lost sales and the total cost of the recall;
• establishing a claims-processing mechanism;
• providing dispute analysis and litigation support services, such as expert testimony, in product liability cases; or
• developing tailored information-management systems.

Recovery

Recovery from a product recall entails not just the immediate action of removing product from the market, but ensuring that its reintroduction meets with the expectations of regulators, shareholders, the media and the consuming public. Marsh's consultants can assist clients in:

• completing all reports required by regulatory authorities;
• monitoring and assessing the product's reintroduction, making strategy adjustments as needed;
• notifying all concerned parties when the recall has been completed;
• supporting corporate counsel with any claims against the company; and
• advising on how to apply the lessons learned from the recall in the future.

Marsh has strategies that can help minimize the impact of a product recall, so that companies can protect their brand reputation and bottom line, be responsive to regulators, and preserve their relationships with their customers.

Contacts:

Katherine A. Cahill
212-345-3036

Alan H. Schoem
202-263-6783

Kathy Hill
214-303-8595