What are the risks of product recall for food and beverage companies?
Food and beverage businesses work hard to 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 built on a reputation for safety and quality, a publicised recall can have an adverse impact on a company’s reputation, affecting sales during and long after a recall has been resolved.
As well as the cost of recalling, destroying and replacing affected products, you can face the cost of penalties to retailers, business interruption, clean-up, legal defense, and rebuilding trust in the brand.
What can Contaminated Products Insurance covered?
Contaminated Products Insurance is designed to protect your finances and reputation and help you get back on your feet quickly. It covers all costs, from pre-recall investigation to rebuilding the brand after an incident.
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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.
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.
Crisis planning and high-standard quality controls are key to mitigating the risk of product recall.”Shawn McCleary | Associate DirectorNational Product Recall Team
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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 include crisis consultancy support to help you protect and rehabilitate your brand.
Costs expenditure: Product Recall Insurance pays for costs incurred by your company or a third party such as a direct customer, including the cost of labour, transportation and disposal following a recall.
Responding to a contamination
Identification
- Pre recall expenses including laboratory costs, to determine whether product has been affected.
- Crisis consultant costs.
- Traceability analysis to determine root cause of the contamination.
Management
- Recall expenses, including communication, transportation and labour costs.
- Product destruction expenses.
- Product replacement costs, including transportation.
- Slotting and re-slotting fees charged by retailers.
- Costs of cleaning affected facilities and machinery.
- The cost of sub-contracting manufacturing to a third party during clean-up.
- Recall costs when the contaminated product is an ingredient of a product manufactured by a customer.
- Defence costs for claims 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.
Disclaimer
WTW hopes you found the general information provided here informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
