Insurers continue to compete, expand coverage

Product recall market update

Natasha McLean Product Recall & Contamination 646.572.3901 nmclean@lockton.com

ON APRIL 30

Thermos announced a recall of 8.1 million food and drink containers after customers reported injuries, including three who permanently lost their vision, when a defective stopper popped off and struck them.

IN MARCH

Trader Joe’s recalled millions of pounds of frozen food due to concerns that broken glass had contaminated the products.

These incidents offer fresh reminders of the cost and burden of product recalls, as well as the availability of insurance to help companies manage losses from these incidents.

Who needs recall insurance?

Product recall insurance can cover the costs of removing a product from the market, notifying consumers, and crisis communications to manage the reputational fallout from a recall. Policies also cover lost profits; third-party recall liability, including litigation defense costs; and the costs of destroying defective products.

Frequent buyers of this insurance include retailers, manufacturers, consumer products companies, food suppliers, cosmetics companies, and pharmaceutical companies. These companies face significant risk if defective products make it to the market. Some, such as pharmaceutical firms and food companies, face the added burden of regulatory scrutiny if a flawed product reaches store shelves.

New trends in product recall insurance coverage

Despite recent significant recall events, pricing in the product recall insurance market remains favorable to most buyers. In the first quarter of 2026, median total program rates were unchanged, according to Lockton data. (See Figure 1.) First-quarter results were somewhat skewed by increases in limits and loss activity for a small number of buyers.

The entrance of new managing general agents and the influx of capacity they bring to product recall insurance have contributed to market softness.

Another consequential shift in product recall insurance over the last three years has been the expansion of policies to cover product quality issues. New wording in policies addresses quality issues, such as mold, fungus, and pest infestations. These issues don’t pose an immediate safety risk to consumers, but they may cause consumers to avoid buying a product or to return it.

Quality issues may also include product contamination by foreign matter, such as small pieces of plastic that find their way into products during the manufacturing process. These contaminants may not cause injury, but consumers may decide it’s unpleasant to consume food with unwelcome foreign bodies.

Most quality issues in recall policies fall under sublimits, but in some instances carriers can provide full policy coverage in upcoming renewal cycles.

Product recall insurance may also cover recalls stemming from natural product integrity — for example, related to organic, all-natural, vegan, vegetarian, and GMO-free products. Similarly, policies may also cover organoleptic properties, such as taste, texture, smell, or appearance, that customers don’t expect, like candy that should be red but comes out of processing pink or another color.

These quality enhancements show how the product recall market is evolving to address the ever-changing risk landscape. However, individual insurers are taking varied approaches to policy language.

New risks in product recalls

Product recalls invite the prospect of class-action lawsuits. Litigation becomes another headache for companies as they deal with removing items from the market, destroying them, and replacing them with new inventory.

Lawsuits aim to determine who is to blame when things go wrong. While the circumstances leading up to some recalls are fairly clear, like machinery breakdown on a manufacturing line, others are harder to pinpoint. Did the defect originate from a vendor? Did the product go bad during distribution? Was some process overlooked?

Plaintiffs’ firms monitor product recalls and often pursue litigation quickly. Notably, in 2025, a pet food manufacturer reached a $5.5 million settlement with a class of consumers who purchased dog food that had been contaminated with salmonella.

Separately, in March, a bicycle manufacturer was assessed a $11.5 million civil penalty by the Consumer Products Safety Commission for failure to immediately report cranksets that posed crash hazards. Although product recall policies do not cover civil penalties, they would respond to product recalls related to bodily harm or property damage. This highlights the importance of purchasing product recall coverage.

Fragile supply chains can increase the chances of product recalls and related litigation. Higher input costs, geopolitical conflicts, and shipping constraints can cause companies to seek out alternatives in their supply chains. That, in turn, can raise the risk of product breakdowns or contamination, leading to recalls.

Companies should carefully document processing or manufacturing processes and consider third-party services to assist with supply-chain assessments.

What policyholders should know

Underwriting in product recall insurance has expanded over the last two years. In general, policyholders should expect detailed questions about their vendor arrangements, quality control initiatives, supply chains, and regulatory compliance programs. Underwriters have increased scrutiny of products from Asia.

Policyholders should work with the right broker to understand their product recall policies. Some policies respond to mishaps that fall short of a full-blown recall. For example, a product defect that occurs within a processing or manufacturing facility and is discovered before distribution to the market could trigger a recall policy.

Policyholders should also know and prepare for what product recall insurance covers and, perhaps just as importantly, what it does not. Recall policies do not cover injuries to consumers. Claims made by consumers who fall ill or are injured from a defective product will more likely trigger a general liability policy.

Beyond these issues, brokers can help policyholders develop a product recall policy that addresses their specific risks and fills gaps in other coverages.