Though rarely deemed directly capable of causing injury, substances potentially able of producing cancer are extremely common in our foods.
However, since a major accidental contamination incident last year involving carcinogens created worldwide recalls for a global food manufacturer, the issue of carcinogens has climbed up the food and drink manufacturing agenda.
The 2021 incident saw millions of pounds worth of products being recalled, with the threat of inadequate insurance cover also looming over the impacted business.
These situations serve to remind food and drink manufacturers how today’s interdependencies across complex, global supply chains can potentially leave them open to catastrophic recall insurance claims.
If a business is not adequately protected via insurance, then product recalls can erode profitability and have a damaging effect on the balance sheet. In the worst scenarios, the potential impact of carcinogens can lead to the insolvency of a once successful business because of the irreparable damage to their brand and customer trust and demand.
Currently, there is something of a division amongst insurers on providing carcinogen cover within contaminated products insurance (CPI) which is how product recall is referred to in food and drink policies. In our experience, the split is roughly 50/50, with half of the market believing a blanket exclusion needs to be applied and therefore refusing to provide cover, and the other half being comfortable with providing a limited version of cover for carcinogens in food and drink. How does this work in practice and what’s behind the insurer disparity?
All product recall policies across all sectors have two trigger events, which are either that the insured product has or would cause bodily injury and/or property damage. Product recall insurance is a ‘short-tail’ class of business in that in order to satisfy the bodily injury trigger, generally speaking there is a manifestation period stated in policies requiring any illness to become evident within 365 days of consuming the insured product.
Some underwriters stick to the stance it would be impossible to prove consuming a processed meat product, for example, which has been linked to an increased risk, some 300 days earlier was the cause of an individual falling ill with cancer. Realistically, even if the insured could prove a carcinogenic contamination, it is most likely such contamination would be excluded because it would not be possible to satisfy the manifestation period requirements.
In the worst-case scenario, whereby someone did develop an illness after consuming processed meat, as per our example, it is most likely this would not happen for many years after consumption.
A further reason for the divide in insurer appetite in this space is because the scientific research does not offer sufficient clarity and certainty. While there is a surfeit of research available, there is little consensus.
Arguably, if you searched hard enough, you might find the case for a great variety of foods to be deemed capable of containing carcinogens. The diverse and shifting scientific perspectives on which foods will and won’t cause cancer creates a potential minefield for food and drink manufacturers, and also for insurers considering whether to bear the risk. Ultimately, CPI policies are designed to provide clarity to the policyholder on whether an event is or is not covered with regards to catastrophic losses, rather than providing cover for systemic losses inherent to the entire market segment.
Some insurers maintain the position that providing cover for carcinogens would be the gateway to providing cover for large systemic losses. Their underwriters view the issue of carcinogenic contamination as a regulatory exposure that constitutes commercial risk for which each business should bear responsibility.
While given this context, it might seem the type of cover in question is either impossible to get or not worth having, the situation is not quite as straightforward as this.
In our experience, it is possible to achieve enhanced coverage in the form of the ‘government recall extension’ endorsement at an additional premium for this wider cover. This provides cover for carcinogenic contamination in the event of a government, regulatory or other judicial body declaring the need for a recall following such contamination. The government recall endorsement does not require the standard triggers of bodily injury or property damage, meaning the manifestation period does not apply.
Also, in the last year, we’ve seen three new insurance markets enter the recall space, two of which have shown their support in providing at least limited carcinogenic cover. So, while there is greater market support currently, it still needs to be remembered that carcinogen cover cannot be guaranteed, and enhanced terms may only be potentially available following careful presentation of your risk.
If you would like to understand more about your food or drink manufacturing business’ exposure to carcinogen contamination and the risk of product recall, please get in touch.
