Product Recall Insurance: Protecting Your Brand and Your Bottom Line

Product recalls are on the rise, and they can threaten a company’s finances, operations and reputation. Product recall insurance can help businesses recover more quickly while protecting both their brand and their bottom line.

Why Product Recalls Have Become More Common

According to Sedgwick’s 2026 State of the Nation U.S. Product Safety and Recall Index report, there were 3,295 recalls involving a total of 858 million units in the U.S. in 2025. This represents an increase in both frequency and scale compared to 2024.

The increase in product recalls may suggest that product safety is declining, but the opposite may actually be true. When regulatory scrutiny and safety practices increase, product recalls become more likely. It’s not necessarily because products are more dangerous. It’s because problems are more likely to be caught instead of going undetected. This is good for consumers, but it means that companies need to be prepared for recalls.

Could Your Company Survive a Product Recall?

Although recalls are common, they can be ruinous, especially for smaller companies. According to Investopedia, many small businesses have been forced to declare bankruptcy due to defective products. Larger companies are more likely to have the resources needed to survive, but recovery can still be time-consuming and expensive.

In addition to the direct costs, a recall can cause indirect harm in the form of damaged retailer relationships, reduced investor confidence and lost customer trust. The more smoothly the recall process goes, the easier it is to recover.

Product recall insurance can help companies manage these costs and recover more effectively.

What Is Product Recall Insurance?

Product recall insurance is a type of policy that covers the costs associated with a product recall. This typically includes the costs associated with collecting, shipping and disposing of the recalled products. It can also cover business interruption and reputation management costs.

These costs are not covered under standard product liability insurance. When a product is dangerously defective, the company behind it may face lawsuits as well as recalls. Product liability insurance covers legal costs, while product recall insurance covers recall costs. Many businesses need both product liability insurance and product recall insurance because each policy addresses different risks.

Who Needs Product Recall Insurance?

Any company that manufactures, distributes or sells products can benefit from product recall insurance. This includes manufacturers as well as wholesalers, distributors and retailers.

Food and beverage, pharmaceutical and medical device companies are particularly vulnerable to recalls, so they have a heightened need for product recall insurance. However, recalls can also occur in other product lines, from children’s toys to automotive parts.

How to Assess Your Product Recall Risk

The cost of a product recall depends on numerous factors, including the number of units involved. However, a recall can easily add up to millions of dollars in direct costs.

Don’t be caught off guard. Assess your risks and insurance needs before you face a recall.

• Are you required to maintain product recall insurance? Check your contracts with partners and clients. You may be required to maintain coverage at a minimum level.
• What harm could a defective product cause? Even companies with rigorous quality control can experience product defects. Supplier issues, labeling errors, equipment failures and design flaws can all lead to recalls. Instead of asking whether a defect is possible, consider the potential impact if one occurs and whether your business is prepared to respond.
• How much would a recall cost? Imagine that your most popular product is recalled for a manufacturing period that covers several months. How many units would be affected? How much would it cost your company to notify customers and collect, transport and dispose of the units? Don’t overlook indirect costs such as business interruption, customer notifications and reputational damage. Add up the costs so you know what your exposure is.
• What is your recall plan? Emergency planning is at the heart of risk management. Just as businesses prepare for natural disasters and cyberattacks, they should also have a documented product recall response plan. That way, if you need to issue a recall, you can act quickly to minimize the total costs, as well as the reputational damage to your company.

Once you’ve assessed your product recall exposures, you can determine your product recall insurance needs.

Every company that manufactures, distributes or sells products should understand its recall exposures – before a recall puts its reputation and bottom line at risk. Heffernan Insurance Brokers can help your business assess its risks and secure product recall insurance tailored to its operations. Learn more about business insurance solutions.