Product Recall Policy

It is a part of any commercial contract that the seller gives to the buyer what the seller has represented that it will provide. Hence while selling a product it is implicitly agreed that the product will perform the function for which it has been bought by a buyer, without problem and to the buyers satisfaction as reasonably understood.

If such a product does perform the stated function, threatens the buyers life or property or is does not perform upto the reasonably expected efficiency the seller should replace or repair it. Product recall is part of such an implicit guarantee given by the seller. 

Product recall is an expensive affair and companies end up spending millions of dollars, but it is an integral part of good business ethics and management of corporate image.  A product recall policy covers the expenses incurred a corporate to manage the recall and the cost of replacing / repairing the defective parts. The policy can be taken to cover recall internationally or in a particular region.

Premium is linked to the global experience the insurers have had with:

• The product category. E.g. auto recall policy is more expensive compared to a refrigerator recall policy
• The company. Previous case of recall increase the premium
• The region. Litigious regions tend to have higher premium. E.g. companies operating in USA have to pay more that companies operating in India
• The cost of recall. E.g. Recalling cars is more expensive compared to recall toasters.

Recalling company will have to setup a recall system that entails the following.

• Track buyers if possible and send communication to them. Else issue broad media based notifications
• Train local dealers to replace / repairs. If not possible then create a system whereby local dealer accept the defective product and send it to a central repair facility
• Send an inventory of parts to the local dealers if they are going to repair.
• Create a system to collect defective parts
• Create a system to monitor and destroy defective parts
• Create an audit system to monitor the percentage of replacements that have taken place
• Create a system to manage residua liability that can arise from customers who have not got the defective part repaired inspite of reminders.