Product recall insurance in Singapore: SFA and CPSO recalls

What triggers a recall in Singapore?

Two regulators direct recalls, and a business can also start one on its own.

The Singapore Food Agency (SFA) regulates food. Its standard recall procedure covers imported meat, seafood, produce and processed food. A recall starts when the importer receives a complaint, a notice from a supplier, a notice from the exporting country's authority, or a direction from SFA that a product may be unsafe to consume. The recall is mandatory when SFA instructs it, and voluntary when the importer acts first.

The Consumer Product Safety Office (CPSO), within Enterprise Singapore, administers safety requirements for consumer goods. It maintains a register of controlled goods that must carry the SAFETY Mark, and publishes recall notices and safety alerts for products found to be hazardous. Recent notices cover a projector with a battery fire hazard, dive weight pockets with a drowning risk and self-feeding pillows for infants.

A voluntary recall is the most common form. A manufacturer finds a quality fault in a batch, or a supplier reports an undeclared allergen, and withdraws the product before any regulator is involved. The costs are the same whether the recall is ordered or chosen.

The 48-hour SFA rule

A business under an SFA recall direction must remove the affected product from all distribution points within 48 hours. When the recall is complete, the business reports to SFA, which inspects the consolidated recalled stock at the business's premises to confirm compliance. Failure to comply with a direction is an offence that can be prosecuted. SFA stated in a parliamentary reply that every business given a direction in the preceding 3 years had complied.

SFA's recall plan template sets out the steps a food importer must be able to execute at once:

1. Obtain and consolidate information about the product: batch, quantity, distribution.
2. Stop distribution and sale of the affected product.
3. Inform SFA of the problem.
4. Notify the distribution chain, trade customers and retailers; where needed, the public.
5. Retrieve the product from every point in the chain.
6. Dispose of the product as directed.
7. Report on the recall, including the action taken to prevent a recurrence.

Two days is not long for a product in 400 outlets. The businesses that meet the deadline have a written plan, a named recall coordinator, batch-level traceability and a standing arrangement with a logistics provider for reverse collection.

What a recall costs

A recall creates 6 cost lines. Most of them fall on the business whether or not anyone was harmed.

Example only. An importer with 60,000 units of a sauce in 300 outlets at a wholesale price of S$4 might see the following. Notification and call handling S$25,000. Retrieval and warehouse handling S$40,000. Certified disposal S$15,000. Replacement stock S$240,000. Testing and consultants S$30,000. Then 3 months of lost margin on the line. The direct costs alone exceed S$350,000 before any lost profit, and nobody has been hurt.

Third-party claims add to this where someone is injured. Those sit under product liability, which is a separate cover.

Product recall insurance versus product liability

The 2 covers respond to different events.

AIG's contaminated products and recall policy, as described on its Singapore product page, is available to manufacturers, private label owners, importers, distributors and retailers regardless of revenue. For ingestible and topical products it is triggered by accidental contamination, malicious tampering and product extortion. For other consumer products the triggers are defect, tampering and extortion, with an optional government recall extension. Expense heads include recall costs, business interruption, rehabilitation, consultants and replacement.

Liberty announced an SME food and beverage recall policy for Singapore and Hong Kong in September 2022. Premiums are set from turnover and limit, with nil retention and a panel of crisis consultants. The existing article on public liability versus product liability covers the liability side.

Who buys recall insurance

Recall insurance suits any business whose product reaches many end users and can be traced back to it. In Singapore that includes:

• Food and beverage importers and distributors, who bear SFA's 48-hour duty directly.
• Food manufacturers and private-label brand owners, whose name is on the pack.
• Importers of controlled consumer goods carrying the SAFETY Mark.
• Cosmetics, supplement and infant product suppliers, where contamination is ingestible or topical.
• Component suppliers whose part can trigger a customer's recall and a contractual recovery.

The underwriting questions follow the recall plan. Insurers ask about batch traceability, supplier audits, laboratory testing frequency, the written recall plan and whether it has been tested in a mock recall. A business that cannot name its recall coordinator will find the premium high or the cover unavailable.

Pre-recall plan requirements

Recall policies are written on the assumption that the insured can execute a recall. Most wordings require, as a condition of cover, a written recall plan and immediate notification of any incident that could lead to a recall. The insurer's crisis consultants are usually engaged from the first call, and their fees are paid by the policy.

The plan SFA expects and the plan an insurer expects are the same document. It names the recall team and their deputies and holds current contact lists for every trade customer. It records batch and lot numbers against shipments, sets out the notification wording, and includes a template for the completion report to the regulator. The broker reviews the plan at placement and at each renewal, because a plan written for 20 outlets does not work for 300.

Frequently asked questions

Does product liability insurance pay recall costs?

No. Product liability pays compensation and defence costs when a product injures someone or damages property. Most wordings exclude the cost of withdrawing, inspecting, repairing or replacing the product itself. Recall costs need a recall policy or a recall expense extension.

Is a voluntary recall covered?

Usually yes, provided the policy's trigger is met. The trigger is normally that the product has, or is reasonably believed to have, a defect or contamination that would cause injury or illness. A withdrawal for a labelling or quality reason that poses no safety risk may fall outside the trigger unless the wording extends to it.

What does a recall cost a small importer?

The direct costs are notification, retrieval, disposal, replacement stock and consultants. For a product in a few hundred outlets those lines commonly reach into six figures before any lost profit. The lost margin while the product is off the shelf, and the cost of winning back shelf space, often exceeds the direct costs.

Does the policy cover lost profit after a recall?

Where business interruption or loss of gross profit is included, yes. The policy pays the gross profit lost during a stated period after the recall, and some wordings add rehabilitation costs to relaunch the product. Without that extension, the policy pays expenses only.

Sources

• MSE: written reply to parliamentary question on product recall and enforcement
• SFA: standard recall procedures for imported food
• Consumer Product Safety Office
• AIG: contaminated products and recall
• Liberty: SME food and beverage recall policy