PRODUCT RECALL
Beware Of Food
Contamination Risks
BY: RUSSELL PARK
ATLAS INSURANCE
Product Recall
I
n this day and age of a global
economy and supply chains, the U.S.
is securing more food products from
abroad than ever before. The myriad
of product manufacturers and
suppliers often operate in environments
that are free from the regulation,
standards or enforcement that we’ve
come to expect as consumers of American
food products. As consumption expands,
so too will the difference between product
quality expectation and reality. When
product deficiencies pose a real threat
to the public, government regulation
will immediately demand recall of the
products. It is no surprise, therefore, that
product recall events are on the rise.
In fact, new FDA rules under the Food
Safety Modernization Act will enact
stricter standards and greater penalties
for those manufacturing and serving
food products in the U.S. Criminalization
of these infractions are expected to
set a new standard of safety that is
great for consumers, but could cut
into profitability for those in the food
industry, and even worse, result in jail
time for proven offenders.
As busy consumers, we work hard to
enjoy the luxuries of eating out or
buying prepared foods from outside
establishments. In doing so, we consume
an array of imported foods -- think
scallops from the Philippines, eggs
from the U.S. mainland, beef from New
Zealand, fish from Iceland and so on. If
you are in the business of supplying these
foods to consumers, are you ready for a
potential recall of these products due to
contamination or poor quality? After
all, a product recall may be more apt to
happen than a fire to your building. And
you probably have insurance for that
possibility.
There are three basic ways to prepare for
such a recall:
1. Have some rainy day funds available
to finance the additional expense of
tracking down the products, notifying the
customers of such a recall, and collecting
and disposing of the products.
2. Transfer the risk to an insurer by
looking at Product Recall insurance
(specific limits and deductibles should be
tailored to fit your needs).
3. Transfer risk to the supplier or
manufacturer in an enforceable written
contract – with evidence that they can
financially underwrite such a recall.
This may entail changing to those that
demonstrate proof of Product Recall
insurance (Note: foreign distribution lines
may be less prepared for recalls than the
regulated domestic distributors).
Beyond the recall costs, the simultaneous
costs of food contamination liability and
loss of revenue due to your tarnished
reputation? Depending on where you are
in the food chain (pun intended), even
with a successfully completed recall, your
business can still suffer. To prepare for
the additional fallout, your agent can
provide food contamination liability
coverage, as well as explore reputation
insurance.
If you decide to transfer the risks to
your supplier, you may decide it is
not necessary to purchase your own
protection. The point here is not to
blindly purchase protection, but to
evaluate your options before an event
occurs, and dovetail your chosen
solutions into a common sense cost-
benefit plan that works well for your
business. Your Atlas Insurance agent is
available to consult with you regarding
these options and will recommend
the best solutions for your particular
situation. +
Russell Park is Senior Vice President
– Property and Casualty. With nearly
30 years in the insurance industry,
Russell’s experience includes insurance
for real estate, retail, hospitality , and
construction, focusing on complex
coverage issues, contractual risk transfer,
and alternative funding techniques such
as self-insurance and captives.
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