Product recalls are a costly exercise, hence the significance of product liability and recall insurance. Molebatsi Langa, head of strategic retail accounts at Old Mutual Insure, tells the OFM Business Hour that the financial implications of product recalls range from the cost of collecting the item in question from either consumers or retailers; to the cost of disposing of the items because they’re no longer usable; refunds; and any litigation fees that may emanate should consumers choose to take businesses on legally. 

This discussion with Langa emanates from the recent recall and investigation by the National Consumer Commission (NCC) into five peanut butter brands for higher levels of aflatoxin. On Friday, 23 February 2024, Woolworths recalled its peanut butter ice cream brand with immediate effect over aflatoxin concerns. 

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What the NCC says

"While the Commission is investigating the affairs of the manufacturer House of Natural Butters (Pty) Ltd, they will also conduct a nationwide assessment to establish whether other brands are affected. Manufacturers, distributors, and suppliers of peanut butter must comply with regulations and conduct urgent tests to assess the safety of the products on their shelves and take immediate corrective steps if found to be unsafe. The Consumer Protection Act requires that goods that pose any risk of harm to the consumer be recalled. It is the responsibility of the manufacturers, importers, and retailers to ensure that goods comply with all applicable laws and standards of the Republic”  - says the NCC in a statement

More Peanut Butter Brands Recalled. If you have any of these brands, please return to the point of purchase for a full refund pic.twitter.com/xO2a4Wasn8

— The National Consumer Commission (NCC) (@TheNCC_RSA) February 10, 2024

 Aflatoxin defined

Aflatoxin is a fungal toxin that commonly contaminates maize and other types of crops during production, harvest, storage, or processing. Reports indicate the consumption of a product with higher than regulated levels of aflatoxin could lead to serious health complications, hence the prompt recall of the products in question. Now whilst these recalls are costly, Langa says there are varying insurance products in existence to assist businesses in off-setting the cost of these recalls. 

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 Product liability versus product recall insurance

The head of strategic retail accounts at Old Mutual Insure explains product recall insurance is intended to protect companies from financial loss and bankruptcy resulting from product recalls, while product liability insurance can help cover the cost of a lawsuit if a product is recalled after a customer is injured; however, it will not cover the cost to recall the product.

Langa stresses "product recall insurance covers expenses related to recalling a product once it has been released to the public, so it can help pay for the cost to collect and dispose of a contaminated product,”

It's important for businesses to be aware of the differences in the products, so as to not be caught off-guard, should such an incident take place. 

OFM Business Hour