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It is difficult to quantify the cost of a product recall to Australian businesses as there are so many components to consider, such as the advertising costs (to alert consumers to your recall), transport and disposal or repair of your recalled product, fines that you may incur, replacement products, lost sales and ongoing reputational damage.

The ACCC found there were 670 product recalls in the 2015/16 financial year, up from 596 the previous year. Cars topped the list of recalled products at 182, followed by food and groceries (123), Electrical and gas (80), Hobbies, sport and recreational products (79), IT, phones and multimedia (11), and so on through fashion, industrial and veterinary products.

It seems no industry is immune and the penalties can be enormous. Last year, for example, Woolworths was ordered to pay a $3 million penalty for selling faulty Homebrand goods. While Woolworths is a big company with a large budget, the penalties can equally apply to smaller businesses, whose ability to absorb such vast fines would be almost catastrophic.

Companies can prepare for product recalls through preparation like simulation exercises and incident management planning, including a crisis management communications plan and a post-recall marketing plan to expedite recovery time.

They can also audit, streamline and review their processes in order to minimise the risk of a recall, but no matter how much planning you have done, the circumstances for each product recall are different, and sometimes the resultant recall defies all predicted scenarios.

One way to minimise the liability is to ensure companies are insured against product recall with a policy that will cover them for actual product loss and recall expenses, as well as rebuilding the business through brand reputation and marketing strategies and the ancillary costs to recover your business sufficiently.

To understand the risk facing your business, contact Emjay Insurance whose expert brokers can provide you with the advice and services to ensure your business is managing the risks of a product recall, and that you are is adequately insured and protected, significantly reducing the impact should the worst happen. Contact us on (02) 9796 0400 to discuss your needs.

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