The three basic factors that underwriters look at, says Bill Harrison, managing director of Aon’s Crisis Management practice, are procurement, quality control, and crisis management. Where do ingredients, raw materials, or parts come from? What steps does the company take to ensure their quality? And is the company prepared to handle it if something untoward happens?
Triggers include malicious product tampering, accidental contamination, and product extortion. Depending on the industry, he adds, other triggers can include governmental recall–which is not available all over the world, just in certain countries–and adverse publicity.
To estimate what level of coverage a client might need, Harrison suggests having an expert review a business interruption loss over a three- or six-month period of time, depending on the industry involved. How long might a business interruption last based on industry past experience? How much might business fall off? How long does it take to return to previous levels?
Also consider how much your client’s business spends on public relations and advertising annually. It might have to spend that much again to defend its name brand if something happens. All this can add up, of course, to “far beyond what the company can afford to buy,” but then, says Harrison, the next step is to obtain quotes for a variety of limits. The company buys what it can afford, and self-insures the rest.