Medical Device and Pharmaceutical Product Recalls – What Role for Insurance?

Pill Bottles

Anybody who tracks medical device and pharmaceutical FDA recalls knows that these occur with some regularity and that some of the recalls are necessary to prevent serious life threatening injuries.

A product recall can be potentially devastating for the product manufacturer and may cause a serious financial ripple effect up and down the supply chain.  Can the potential effects of a life science product recall and its resulting expense and reputational risk be mitigated by insurance?

Recall Expenses

Recall expenses can be categorized into three types; first party, third party and reputational.

First-Party (Manufacturers) Expenses

First party recall expenses are costs incurred by the product manufacturer and include notification of customers and distributors,  shipping costs, product storage and disposal, purchase refunds, staffing and travel and lost profits.

Third-Party (Supply Chain) Expenses

Third-party expenses are those incurred by other entities in the supply chain like retail and wholesale distributors and final end-users. These expenses are similar to first-party cost and very often result in the third- party seeking reimbursement from the manufacturer.

Reputational Damage Expenses

Reputational damage results from the poor public image and perceptions created by the publicity that recalls can receive in the press and other public and social media. These costs can be mitigated by having proper media advice and crisis management from the start.

Growing Coverage Options—but They Vary

Traditionally, insurers have stayed away from pharmaceutical and medical device products due to the potential frequency and severity of losses.

Recently, several insurers have begun offering products in the life science industry.  These insurers, however, have limited appetites for this business, and coverage can be very different from one insurer to the next.  Some policies only cover first-party claims while other underwriters only will consider third-party risks. Some, but not all, will cover the cost of media and crisis management.

The trigger for coverage in the insurance agreement can vary significantly, so buyer beware—and choose an insurance broker that can guide you through the maze of options to assure you get the optimal coverage for your company’s specific needs.

About David Shuey

David is an Executive Vice President & North America Practice Leader for Willis Life Sciences, based in Radnor,…
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