Those gourmet pork pies you recently tucked into? You could’ve contracted salmonella. That garlic bread you enjoyed with your pizza? Possibly littered with little plastic chunks. And the beer you washed it all down with?
That tangy twist might’ve been chemical cleaning fluid.

One food or beverage product is recalled off our shelves in Australia every week, according to the Australian Competition Consumer Commission’s (ACCC) website, with the above examples all occurring in the past year.
And the products don’t have to be contaminated, per se, for them to be recalled. In fact, according to Food Standards Australia New Zealand (FSANZ) undeclared allergens such as nuts, eggs or milk accounted for 45 per cent
of all recalls in 2016.

“The impact of an undeclared allergen can be devastating and is particularly difficult to manage due to the increasing use of the global supply chain and imported ingredients,” says Michael Lincoln, Vice President of Crisis Management, Asia Pacific, at Liberty International Underwriters. “We’ve seen examples of clients having losses which exceed their annual gross profit, potentially putting the viability of the company at risk.”

CPI specifically covers business interruption, extra expense, replacement costs, recall costs and also provides for the expertise of recall and tamper consultants/ advisers to be available to guide the company through the critical first few weeks of an incident.

Who’s most at risk?
In fact, the largest at-risk sector is food manufacturers, followed by suppliers to those manufacturers, says Vince Shiers, Managing Director of RQA Group, a leading international consultancy and training firm in
crisis management, product recall, business continuity planning and health and safety.

“They can find themselves in the spotlight if a contamination incident occurs and product has reached the market,” he says.

Adds General Manager of Broking at Whitbread Ben Bowen: “A retail store carries some risk but they don’t carry anything near the amount of risk a manufacturer does. Bottom line is: if there is a recall it’s always essentially
tracked back to the manufacturer.”

It is important for brokers to check that their clients have coverage for product withdrawals. Without coverage for withdrawals, they may only be covered half the time.

Challenges in the market

Claire Richards, Crisis Manager at AIG, says competitive food and beverage markets are increasingly cutting production costs, potentially impacting product quality and quality control. “Sourcing cheaper supplies from alternate providers can lead to extended supply chains which become difficult to monitor and control,” Richards adds.

“As international supply chains continue to expand in complexity, so do risk exposures, potentially increasing the likelihood of a product contamination.”

Bowen adds that investigators often need to work back through these increasingly complex supply chains to pinpoint where contamination occurred. “Supply chains may include multiple entities both locally and  internationally,” he says.

The market’s preparedness One issue Lincoln says brokers need to be aware of is the difference between withdrawal and recall. He says some policies on the market fail to cover product withdrawals, which is when it is a
product quality issue – not a food safety issue. “It is important for brokers to check that their clients have coverage for product withdrawals.

Without coverage for withdrawals, they may only be covered half the time,” Lincoln explains. This is particularly pertinent for clients who provide products to major food retailers, adds Bowen, as there isn’t a whole lot of wiggle room for product quality issues.

“I had a client who had a machinery issue and their product basically dropped by one degree in temperature. As a result, it was flat-out rejected,” Bowen warns.

“[The large chains] are going to invoice you for the costs of recall and apply admin fees. You can’t quantify what that amount is going to be in the event of a recall.”

TOP TIPS FOR BROKERS SELLING CPI:

When it comes to selling policies, Richards says high-profile cases certainly demonstrate the importance of having a robust recall preparedness process in place.

Cases include the Nanna’s frozen berries Hepatitis A scare in 2015, the 2013 Europe-wide horse meat scandal, or this year’s insecticide-tainted egg scandal that engulfed Europe. Richards advises brokers to regularly check
the ACCC’s productsafety.gov.au website which currently lists and highlights the 33 food and beverage product recalls that have taken place in 2017 (as of 9 August) for case studies to explain the importance of contaminated product insurance (CPI) to clients.

She says brokers should also highlight that clients can be protected for more than just physical product recall costs.

“A single incident and any subsequent media coverage can pose a significant threat to consumer confidence, hard-won retail space, important contracts, market share, brand credibility and above all, reputation and profit,”
she warns.

CPI: BEARING THE BRUNT OF IT

“CPI can protect businesses from the devastating effects of such incidents. It specifically covers business interruption, extra expense, replacement costs, recall costs and also provides for the expertise of recall and
tamper consultants/advisers to be available to guide the company through the critical first few weeks of an incident.”

Recall consultancy specialist Shiers adds: “Companies that do not carry [CPI] will suffer from the financial loss and they may also not have the support of experts to help them make the right decisions.”

In regards to premium prices, Bowen says CPI is far more accessible than ever. “It used to attract pretty substantial premiums because there are a lot of different exposures. But the pricing now is as competitive as I’ve
ever known,” he says.

Finally, Bowen notes it’s also worth making an effort to purchase your client’s CPI policy with the same underwriter as their public and product liability cover provider. “Because the risk is that there may be some grey area around whether it’s a product liability issue, or a recall or CPI issue,” he says.

“If you put them together that goes some distance to closing off that grey area.”