Product Recall Insurance & The Defective Unit Surge

The latest data from Sedgwick’s U.S. Recall Index reveals a notable shift in product recall trends that holds important implications for independent insurance agents, MGAs, and wholesalers. While the total number of U.S. product recalls across key industries fell by 13.3% in the second quarter of 2024, the number of defective units recalled surged by an astonishing 96.4%. This divergence presents unique challenges and opportunities for those in the insurance space, particularly those focused on managing product liability, recall coverage, and risk mitigation for their clients.

Product Recall Insurance Trends: Fewer Events, Greater Risks

According to Sedgwick’s report, Q2 2024 saw 788 recall events across the automotive, consumer product, food and drink, medical device, and pharmaceutical sectors — down from 909 events in Q1. However, the volume of defective units recalled jumped to 254.6 million, marking the second-highest quarterly total in the past nine quarters. For agents, MGAs, and wholesalers, this means that while fewer recalls are occurring, those that do happen involve significantly larger numbers of defective products, increasing the potential financial and reputational risk for their clients.

The report highlights that total recall volumes for the first half of 2024 were lower than the same period in 2023. Despite this, the sharp increase in defective units signals a growing severity of recall events, which can translate into larger claims, more complex risk assessments, and heightened regulatory scrutiny for companies involved.

Sector-Specific Insights for Effective Product Recall Insurance

Automotive and Consumer Products: Ensuring Robust Product Recall Insurance Coverage

In the automotive sector, recall events fell by 7.3% to 243 in Q2, but with 5 million vehicles recalled, the impact remains significant. For clients operating in this space, such as manufacturers, suppliers, or dealerships, the focus should remain on compliance with evolving safety and emissions standards. Agents and MGAs should proactively engage with clients to ensure they have adequate coverage that addresses the unique risks associated with recalls, particularly given the recent regulatory changes and heightened scrutiny on electric vehicle safety standards.

Similarly, in the consumer products sector, recall events declined, but the number of defective units surged by 67.3%. As regulatory bodies like the FTC and DOJ increase enforcement actions — including criminal proceedings against executives for non-compliance — there is a greater need for robust product recall insurance. Agents and wholesalers can provide critical guidance on structuring policies that cover not only the direct costs of a recall but also ancillary expenses like legal fees, reputation management, and loss of sales.

Medical Devices and Pharmaceuticals: Preparing for Large-Scale Product Insurance Recalls

Medical device recalls decreased by 18.2%, but the number of units affected rose by an alarming 267.3% in Q2. This trend indicates a shift toward fewer but more impactful recalls, which can significantly disrupt businesses and increase liabilities. Agents and MGAs serving clients in the medical device and pharmaceutical sectors should emphasize the importance of comprehensive recall coverage, particularly as regulatory bodies like the FDA and DOJ intensify their oversight and enforcement actions. Encouraging clients to implement stronger quality control measures and maintain detailed documentation can also help mitigate risks.

Food and Beverage: Adapting Product Recall Insurance to Regulatory Changes

The food and beverage industry saw an 11.9% decline in recall events, but new regulatory changes, such as the FDA’s restructuring into the Human Foods Program, suggest that clients should be prepared for new compliance challenges. Agents can support their clients by providing up-to-date insights on regulatory shifts and helping them adjust their coverage accordingly. This includes understanding the new dynamics around undeclared allergens, which were the leading cause of recalls in Q2, and ensuring policies cover potential recall costs tied to labeling or allergen-related incidents.

Positioning for Future Opportunities

While the surge in defective units may pose immediate challenges, it also presents opportunities for independent agents, MGAs, and wholesalers to enhance their value proposition. By offering tailored insurance solutions and risk management advice, you can help clients better navigate the complexities of today’s recall landscape and protect their bottom line.

As the regulatory environment continues to evolve, staying informed and proactive will be key. Agents and MGAs who leverage their expertise to guide clients through these challenges can strengthen their market position and build long-term, trusted relationships.