What would happen if you, as a food manufacturer learned that the product you make has caused harm to someone, or a group of people? It could be a report of widespread illnesses, it could be a single products liability lawsuit for a contaminated product that caused an injury, it could be a fatality.
In this article, I’m going to discuss the issues around food manufacturing product recall and how the right insurance protection can help give you peace of mind for this potential scary and costly event.
I bet the first feelings are worry, concern, maybe even panic.
What do you do? Who do you call? How do you prevent further injuries, illness or lawsuits? These are issues that keep food manufacturing company owners up at night. So, what’s the solution?
Food manufacturing companies have an over-sized risk for potentially devastating and costly claims which can arise from contamination, mislabeling of products, supply chain vulnerabilities, spoilage during transit and handling, and something totally out of your control, product tampering and sabotage.
When a consumer or groups of consumers of your products fall ill, or are hospitalized, or worse, die there are three events that likely will occur:
- Your company may get undesirable media attention – think of any other food manufacturer who had a Listeria outbreak or other contaminated product causing wide spread illnesses.
- You may get notified by a governmental regulatory agency that your company is suspected of selling a dangerous product.
- You may get a lawsuit alleging bodily injury to one person , or dozens of lawsuits alleging injury to many people. In either case the demands are in millions of dollars.
How does your insurance program respond?
If you haven’t purchased Product Recall Insurance then only item #3 – the lawsuit alleging injuries with claims in the millions will respond. The costs of removing a potentially dangerous product from the consumer stream, remediating your brand, crisis management, loss of business income, and other consequential damages are going to come out of your pocket.
Now you may be thinking – I’ve got product liability insurance, doesn’t that cover all these other costs? After all, if the dangerous product isn’t removed from store shelves, won’t my liability insurer continue to have pay all these claims? Isn’t it in their best interest to pay for the recall?
Unfortunately product liability insurance will not pay for the costs of the recall and other related costs I mentioned.
A study by the Food Marketing Institute and the Grocery Manufacturers Association estimated that the average direct cost of a recall for a food manufacturer is $10 million. And that doesn’t include indirect costs like brand damage, lost sales, etc. which will run into the millions as well.
I will say that some Manufacturer’s Insurance Packages do include a small limit of coverage for recall – like $100,000 but the scope of that coverage is very limited.
So, let’s jump back for a moment to when you learn that a product is contaminated, mislabeled, or otherwise adulterated and you don’t have product recall insurance, what do you do?
How do you begin to organize a recall?
How do you respond to media reports or calls for a news conference?
Who is going to help you through this event?
How do you answer government regulators?
If your plant is shut down to find the source of the contamination does your business interruption insurance cover that? – NO, it does not.
What about my lost revenue and brand damages following a recall when my customers won’t buy my product? How do I recover those dollars?
So, you can probably see the bleak picture I’m painting here. Massive amounts of expenses going out the door at a time when you can least afford it.
You may have to shut down operations, consumers are afraid to buy your product, some of your best customers like big box stores may refuse to carry any of your products, and the stress, worry and frustration mount to epic proportions as your bank accounts dwindle.
The safest most progressive GMP food manufacturers can experience a contaminated products event. As I mentioned earlier, adulteration of your food products may happen after they leave your plant while being shipped, or stocked onto shelves. Or worse someone intentionally tampers with your products. These are still situations you need to deal with.
So, what’s the solution on food manufacturing product recall?
Obviously, insuring this risk moves if off your mind and your balance sheet and puts it in the hands of an insurance company.
What’s important is to customize product recall coverage to your specific needs and to purchase limits of coverage that will cover you if a future event occurs.
One of the best features of many recall policies is a 24 hour hotline that will connect you to a recall consultant, covered by the policy to answer your immediate questions like – where do you start, how do I organize a recall, how can I hire a crisis management team, etc. That immediate peace of mind is gold in my book.
How do you get product recall insurance?
I think the best course of action is to work with an expert. A skilled broker who has access to many of the top product recall insurers to craft a policy that fits your needs and can walk you through the entire process to make sure you’re getting the best value for your dollar.
The Coyle Group is that skilled broker who works with the best insurers of product recall coverage and I’d be happy to speak to you about how this policy works, what it costs, and how it would respond in the event of a claim.
I hope you’ll reach out and connect. One thing that I’ll promise you is that you’re not going to get any high pressure insurance sales pitch. We’re here to help you make the most informed decision around your business insurance and we take that responsibility seriously.
Thanks!
