Product liability and product recall insurance share some key characteristics, but ultimately they’re two different animals.

And in order to provide your commercial clients with the best advice and coverage possible, you should completely understand the differences—as well as exactly when you need to offer one or both.

“This segment of the industry is pretty dynamic right now,” says Letha Heaton, vice president of marketing at Admiral Insurance Company. “If I were a retailer selling this product, I would want to make darn sure that I really understood the dynamics of the industry and the role the FDA is playing.”

In order to protect the interests of their clients, agents might need to rely on assistance from an expert partner. “If they don’t have the expertise, they should seek it out,” Heaton says. “The downside of not adequately covering the exposure is their own agents and brokers errors & omissions coverage. It’s a much more complex and less straightforward series of issues than those that are fully regulated by either a federal agency or an association industry.”

The industry tries to self-police—in fact, Admiral’s research suggests that almost half the time when the FDA gets involved in a quality control assessment, “they have a tendency to lean pretty heavily on these folks,” Heaton explains. “And let’s face it—there have been some outliers that have been pretty irresponsible, bringing in raw materials from China or other countries that aren’t safe.”

That’s why if you’re dealing with clients that need product liability insurance, it could be a mistake to overlook product recall insurance—particularly when it comes to importers, distributors, wholesalers and other commercial clients that get a large portion of their manufacturing parts overseas.

“It’s something they need to address,” says Nicole Greene, senior broker at Burns & Wilcox, who works with product recall risks frequently in relation to professional and management liability. “Just like people buy EPLI and obviously know there’s a need for it, there’s definitely a need when you’ve spent how many years trying to bring your product to market. If you’re finally there, why wouldn’t you want to see it through the next 15-20 years?”

Even the best products will encounter bumps and bruises along the way—contamination, faulty equipment and untrustworthy imports, just to name a few. “Why wouldn’t you buy peace of mind for if something were to happen?” Greene asks. If a company is buying a component piece from China because it costs a dollar there vs. five in the U.S., “why not spend the money you’re saving on the actual product recall policy? Save yourself that peace of mind.”

The policy might cost $3,000, $5,000, even $10,000. But “it’s obviously still a cost savings in the long run,” Greene says. “And then you have the peace of mind and the resources available. It’s a great enhancement to the product liability policy—why let that risk eat into your profits when it’s pennies on the dollar?”

Product recall coverage could be equally important for professional clients like architects, engineers and contractors. “Let’s say someone calls themselves a process engineer and they’re working on circuit boards to design the wiring harness for the wiper blades,” Greene says. “The agents seem to think that if I’m a designer of an electrical circuit board for a wire harness that goes in an automobile, clearly I’m a designer so clearly I need an A&E policy.”

But that’s not actually the case. “An A&E policy will only cover you for a custom, one-off design when it’s a concept phase,” Greene says. “Agents misunderstand that once that concept becomes a product, that requires a product liability policy. When you’re past the prototype phase and into the production phase on the product, that’s when it needs product recall for the financial loss.”

Jacquelyn Connelly is IA senior editor.