Product recall insurance in Korea: thinking beyond premiums

Korea has had its share of product recalls in recent years; so consumers are more recognizant of the need to protect themselves against faulty products. However, for most manufacturers, recall insurance is still not widely accepted. Tae-Han Kim, Casualty Facultative Underwriter at Swiss Re in Korea, discusses the need for product recall insurance to protect Korean consumers and manufacturers from critical damage to both the bottom line and to corporate reputation.

Korea has seen its fair share of product recall campaigns – both local and worldwide – and from many different industries. Recent high profile cases have sparked fast and furious debate about product recall programs to help meet the requirements set by consumer protection and related regulations, designed to defend the Korean public against harm caused by or originating from harmful products whether caused by human error or faulty design.

Despite this, recall insurance is still not widely accepted simply due to the lack of understanding of coverage and a tendency to believe that  premiums for this kind of program must be very high.

Globally, most common recall programs are for food related products, followed by those for automobiles  and pharmaceuticals. Among them, automobile related recall is the  most serious class.

According to a recent domestic study, only a handful of Korean manufacturers buy recall insurance and even those buy insufficient compensation limit. Hence most consumer products do not really have insurance protection, and a recall may cause financial burdens for manufacturers as well as potential injury or damage for customers.

Even if manufacturers can afford to pay the costs of recalling a product, the double impact of financial loss and reputation damage can be enormous. Considering these points, premiums for the recall insurance are not all that expensive, compared to the potential losses after an event.

To fill the gap of understanding and assess real exposure, Swiss Re believes it is essential that insurers develop recall products together with experts. 

Download the full article to find out more. 

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