Two case studies of product recall insurance from your risk mitigation expert
First example of product recall insurance
The company was a subsidiary of a mail order company. They offered free of charge to its customers a deep fryer, if they placed an order with a minimum purchased amount. They bought the deep fryers from a distributor and offer it under their own name, rebranding the item.
The deep fryers were shipped from China to Europe in few shipments and reached Europe through the port of Le Havre in France and Antwerp in Belgium.
Upon arrival at Le Havre, some samples have been checked by the custom, it was found out a defect on the climbing of the wire of the earth connector, they did not meet the safety standard of the EU regulation regarding electrical products.
However, the problem started with a low percentage of the deep fryers were found defective, but the defect was not detected by the company that did the quality control inspection.
Out of 68,000 deep fryers already distributed in France, 50,000 were recalled.
The mail order company hold responsible the distributor who sold this product to them, he was insured. The insurer indemnified all communication expenses posted on media to advertise about the recall expenses to locate the defective product, shipping, warehousing fees, overtime salary related to the recall operation.
The cost of the claim from the product recall insurance was about 200,000 euro.
Second case study
A company manufacturing electric motors mainly used as component of gardening and outdoor power equipment. They sold about 15,000 motors to one of their client in Europe that manufactures power tools equipment such lawn mowers and electric saws.
On arrival of the motor to their client in Europe, almost 60% of the motors were found defective. The diameter of the internal thread of the motor shafts was outside the permitted maximum tolerance. The motor cannot be used as the screw on which the blade of the lawn mowers was fixed can be loosen itself with potential damage to user. It was a safety issue.
The company supplying the motor was hold responsible of the defect and has to recall the defective product and rework it to correct the defect.
In fact the defect was not detected as this component was outsourced to a supplier so they did some checking but not the control of the size of the diameter of the thread which was supposed to be done by the supplier.
The loss consists of the cost of the sorting operations, the costs for reworking in China and Europe, the value of the scrapped components, travel and air transportation expenses, and the cost of the equipment for the rework lines.
The loss was covered by product recall insurance. Total cost was about 300,000 euro.
Although the product was not subject to any public recall order, the claim was covered as the defect of the product was a safety issue.
Learn more about product recall insurance and how it can help your business in China mitigate risks – check out my episode with Daxue Talks
Contact Asian-Risks to find your ideal product recall insurance plan in China.
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