Insurance Blog | Wadsworth | The O'Neill Group

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Apr 06, 2018

Everything You Need To Know About Food Recall Insurance

Whether your Ohio food company has faced a food recall or not, it’s probably the one thing you’re most terrified of happening to your business.

 

 

A food recall can be devastating to your brand, your reputation, and your bottom line.

In fact, many companies have been forced to shut down operations simply because they could not recover from the loss following a recall.

But don’t worry, you’re not the only one terrified of a recall. All food companies fear the risk of recall, and are looking for solutions to help them sleep at night.

Some peace of mind… right?

Well, I can help with that.....

My job here at The O’Neill Group is to help you “rest easy” by transferring your risk to a food recall insurance program.

I help many Ohio businesses transfer risk each year.

From farmers and manufacturers, to packagers, processors, distributors and retailers - I am meeting with companies across the industry frequently to learn about the risks they face, and then designing for them tailored insurance programs that address their needs and protect them, financially.

I’m telling you now that buying a Food Recall insurance policy (in addition to your General Liability insurance policy) will be the reason your doors stay open when a food recall strikes.

And choosing the right Food Recall Insurance Specialist to help you navigate through the complexities of the insurance process is your first step.

So here’s what you need to know regarding Food Recall and Food Recall Insurance in Ohio:

As an Ohio Food Company, you are at risk of facing two types of losses: first-party operational losses and third-party liability losses to injured consumers. (both are costly!)

  • First-party operational losses are losses that directly impact your company, such as the initial recall expenses like notifying the public about your recall, removing the product from the market, replacing the product, testing, employee overtime, and transportation. Other, more significant and potentially long-term operational losses include a decline in sales and brand rehabilitation.
  • Third-party liability losses are losses suffered by consumers, for which your Ohio food company may be legally obligated to reimburse. Liability losses may also include any profit lost by a customer, or any extra expenses that may have been incurred not only to the product that has been recalled - but also to the products the customer is selling.

Both exposures can make a significant impact on your bottom line. That is… unless you have the right stand-alone food recall insurance policy.

The right Food Recall insurance policy is critical for your company.

I have talked to hundreds of Ohio food companies, and most (unfortunately) believe that they have Food Recall insurance.

After reviewing their insurance policies, 9 times out of 10 - the company does not have adequate coverage for a Food Recall.

Many companies believe they have food recall insurance included in their General Liability policy, or that their endorsement or limited extension for food recall insurance is enough coverage.

Let’s address the former, first.

FACT: Food recall insurance is EXCLUDED in the standard General Liability insurance policy.

Your General Liability insurance policy covers you in the event your product fails or causes direct bodily injury or property damage.

It DOES NOT cover the most expensive components of a food recall.

And to the latter...

Many Ohio food companies also believe their Food Recall endorsement or limited extension added to their General Liability policy will provide enough coverage for them.

While your General Liability policy may include an endorsement (what may be referred to as a Product Recall Expense Endorsement) - it will cover some first-party operational losses, but not all.

Also, it will NOT provide coverage for any third-party liability losses.

A food recall endorsement or limited extension is very narrow in scope, and does not provide you with the adequate coverage you need for the most costly components of a food recall.

BOTTOM LINE

So here’s the bottom line…

As an Ohio food company, whether you’re in the business of farming, manufacturing, supplying, packaging, processing, distributing, or retailing - you need a stand-alone food recall insurance policy to protect your company, financially.

And the policy needs to be tailored to your specific (and unique) needs.

Your food recall insurance policy should provide protection for the following:

  • Recall expense: This is an out-of-pocket expense that’s associated with withdrawing your product from the marketplace. It includes costs such as extra temporary employees, overtime, public safety messages, special testing and handling, destruction and disposal costs and crisis management and/or PR consulting fees.
  • Replacement cost: As the name implies, this is the cost of replacing the product destroyed. This includes the cost of materials, labor and overhead associated with producing the product.
  • Lost profits: This repays you for profits you would have earned on the product withdrawn, and also for profits that would have been earned on future product sales but were not earned because of a decline in sales.
  • Brand rehabilitation expense: This helps protect your brand and reputation, including costs like extra advertising, extra expense to rush a new product to market and special promotions to rebuild public trust in the manufacturer and its product.

The risk of recall is rising at a rapid pace, and has no sign of slowing down anytime soon.

As compliance standards continue to tighten, and the global supply chain becomes more complex - the number of recalls will escalate.

So you can continue to be anxious that your company will be next… or you can transfer the risk to me - so I can do my job at protecting your company right.

Next Step:

The food recall insurance marketplace is highly specialized. I can help you secure the food recall insurance coverage you need and collaborate with you to develop a recall risk management and insurance program that protects your company’s bottom line.

Let me know what specific questions you have about food recall insurance. Call me at (330)- 334-1561 or email me at ptoneill@oneillinsurance.com

Components from this article were adapted from Zywave.

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