Contaminated products insurance for food and beverage companies

Manufacturers continue to strive and meet the expectations of regulators, customers and consumers. What happens when they fall short?

Stringent regulation, inflationary pressure, complex supply chains and the growth of alternative foods have all increased the frequency and severity of product recalls.

In an industry where trust drives consumer preference, a publicised recall can have an adverse impact on a company’s reputation, affecting sales during and long after a recall has been resolved.

Manufacturers commit huge resource to implement robust quality assurance, testing procedures and staff training in food safety practices. Unfortunately, it is impossible to completely eradicate the risk of a recall.

Standalone Contaminated Products Insurance can complement these operations, to provide crisis management support and protection against the broad range of financial implications following a recall event.

What can be covered?

Contamination

Accidental contamination or malicious contamination, provided that consumption of insured products would lead to bodily injury / property damage.

Product extortion

Any threat or allegation to maliciously tamper with an insured product, together with a demand for ransom.

Adverse publicity

Reporting of alleged accidental or malicious contamination to the media, where the insured is specifically identified.

Government recall

Recall and / or the suspension of the insured’s production facility due to the determination by a Government body that product has been adulterated and would cause serious health consequences.

Packaging defect

Provided that consumption of insured products would lead to bodily injury / property damage with errors in the design, manufacture, production or processing of packaging material.

How can contaminated products insurance help you?

• Balance sheet protection:
  Maintaining adequate product recall cover can provide vital balance sheet protection, enabling resource to be allocated where it is needed most. The overall cost to manage a recall can often outsize the value of affected product.
• Brand and reputation:
  When risk management systems and controls do fail, what matters most is how you respond and manage the event. Our solutions do not solely focus on risk transfer, but include crisis support for company’s to respond, protect and rehabilitate their brand.
• Costs expenditure:
  Whether incurred by a policyholder or their customer, the costs to cover labour, transportation and disposal following a product recall would typically be covered under a product recall / contamination policy.

Responding to a contamination

Identification

• Pre recall expenses including laboratory costs, to determine whether product has been affected.
• Crisis consultant costs to assist the insured.
• Traceability analysis to determine root cause of the contamination.

Management

• Recall expenses, including communication, transportation and employee overtime labour costs.
• Product destruction expenses, to dispose contaminated products, including all packaging and labelling material.
• Product replacement costs, including transport costs to redistribute back to customers.
• Slotting and re-slotting fees charged by retailers.
• Costs of cleaning affected facilities and machinery, and the costs of sub-contracting manufacturing to a third party during this period.
• Recall expenses, product destruction expenses or product replacement costs when the contaminated product is an ingredient of a product manufactured by a customer.
• Defence costs to defend a claim made by a customer for expenses or loss of gross profit.

Recovery

• Loss of gross profit
• Customer loss of gross profit
• Rehabilitation expenses to re-establish sales to levels prior to the recall.

“

"The direct costs suffered by the producer were $8million and included contractual penalties to customers, PR and communication costs, the cost of recall, refunds and the cost of destruction.”

Chris Heinicke | EVP, Head of Casualty (Bermuda) Direct and Facultative

In addition to this, the producer’s profits fell by $15 million due to the loss of attraction to their bestselling brand, causing it’s share value and ability to pay dividends to fall significantly.

Contaminated Products Insurance ensures a food and beverage company’s balance sheet is protected from events like these. Third party expenses such as customer loss of profit and contractual penalties can be covered (often sub-limited), while the direct expenses an insured may suffer are also indemnified.

The insured engaged a specialist crisis consultant to assist in traceability of affected product and notification to all stakeholders of the issue. Through access to rehabilitation costs, the insured had access to additional marketing expenses to re-establish sales and minimise the long term effects of a contamination.