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Food Safety LMU imageFood recalls are on the rise with 25 already this year, according to a January 29 Forbes article. Even so, many companies don’t have insurance coverage to protect themselves.

You may be surprised to learn a standard property & casualty policy does not cover the costs of a recall. In fact, both property and casualty have exclusions against recalls, which puts companies – including, or perhaps especially, smaller ones – at risk.

“Smaller companies tend to feel immune to the threat of recalls, assuming big problems only happen to big companies. In reality, the proportional damage of a recall is bigger for a smaller business.”

Smaller companies tend to feel immune to the threat of recalls, assuming big problems only happen to big companies. In reality, the proportional damage of a recall is bigger for a smaller business.

Damage on a scope broader than most people realize
Beyond the cost of recalled product destruction and replacement, sales tend to slump and brands suffer damage that can reduce a company’s value. Then there is the cost of public relations and marketing programs like discounts meant to bring back those lost customers. Both Chipotle and Blue Bell have required additional capital after their recent events.

Why so many recent recalls?
The Food Modernization Safety Act in the US has introduced regulations that prompt recalls whenever there is the slightest doubt about food safety, whether it’s a contamination issue or a labeling error.

Also, recalls often appear in the news because the media is quick to publicize events that affect consumers so directly. That’s a good thing, but it has also created a false sense of security for smaller companies. The media jumps when global brands like Mars issue a recall, while smaller company recalls tend to go overlooked. Yet Mars can tolerate the loss of 1 billion units of product, whereas a mid-sized company taking an equivalent hit might collapse.

How can companies protect themselves?

  • Companies that process food need a Contaminated Products Insurance (CPI) policy. It covers not only tainted products but also mislabeling, such as when wheat shows up in a product labeled gluten free.
  • A Restaurant Policy offers protection from mishaps such as food-borne illness caused by improper cooking.
  • A Consumer Product Policy covers incidents like the recent hoverboard saga.
  • An Automotive Component Recall Policy is typically held by the supplier responsible for providing parts to a manufacturer. (You may remember last year’s airbag recall.)

Whatever type you need, a proper recall policy covers all economic losses. Equally important, most recall policies include crisis management support, including everything from legal and public relations support to setting up customer hotlines.

Given the growing need for recall coverage, more carriers are entering the marketplace. As a result, prices are falling. If you don’t have coverage, now is the time.

Learn more in my recent white paper: Serving Up Safeguards Against Foodborne Illness.