Your recall insurance policy, that is.
The language is very technical and if you don’t work in the insurance industry, it can be difficult to understand.
If you’re like other Ohio food companies, the single greatest threat to your business is having your product recalled.
And while you may have purchased a recall insurance policy or are considering purchasing recall insurance, you’re probably still questioning what exactly is covered, what is not covered, and whether or not you have enough coverage.
Am I right?
But understanding what a recall insurance policy is and what it covers is essential to ensuring that you have the right protection in place in the event your product is recalled.
Here’s three common questions I hear from Ohio food companies regarding recall insurance.
What is a recall insurance policy?
Recall insurance is an insurance product that protects your company, financially, in the event that your product is recalled.
It addresses two exposures: Damages to your company like like recall costs, loss of profits and rehabilitation costs to your company and can extend to protecting your customers loss of profits as well.
- Coverage for Your Company may include business-related costs associated with conducting a recall, such as product loss, costs to withdraw the product from the market, destroying contaminated inventory, product testing, overtime wages, crisis management, and marketing/PR. In addition to initial recall expenses, recall protection will cover potential long-term losses from damage to your company’s reputation and the most significant threat - loss of sales, customers and profits that may continue for months or even years.
- Coverage for your customers and supply chain can also be protected. For example, if you have a contaminated ingredient that is shipped down the supply chain to a food manufacturer who mixes your contaminated ingredient with their product - your customer or vendor becomes subject to damages and expenses associated with the recall. Your policy can reimburse your customers as a result of the product recall caused by your product or ingredient.
In short, recall insurance is designed to reimburse your company for financial losses resulting from a recall.
Who needs a recall insurance policy?
Realistically, any company in the food and beverage industry should secure a recall insurance policy.
Whether you’re a grower of produce, processor of meat and poultry, manufacturer of consumer goods, - if a food product passes through your shop, you face the risk of recall.
What triggers the recall insurance policy?
The recall insurance policy is triggered by four events:
- Accidental Product Contamination which is an unintentional error or the introduction of an ingredient supplied by an outside that has been contaminated. This includes mis-labeling and undeclared allergens which are some of the leading scenarios for a recall.
- Malicious Product Tampering which is actual or threatened contamination of your product that renders the product unsafe for the consumer. This can happen from disgruntled employees or temporary employees that don't understand the ramifications of food tampering.
- Product Extortion which is where your company becomes a victim to extortion. Inducing your company to pay a ransom by threatening to damage, destroy or contaminate your product.
- Governmental Recall which is either recommended or mandated by a federal agency such as the Food and Drug Administration or the United States Department of Agriculture. With the introduction of the FSMA, recall incidents have been on the rise.
The Bottom Line.
The fine print on your policy can be difficult to navigate.
I hope this gives you a better understanding of what a recall insurance policy covers, and when it’s triggered.
Regardless of QA procedures, food safety inspections and 3rd party audits, no company is immune to the risk of recall.
And the costs associated with a recall are brutal - and have been known to shut down businesses altogether.
Securing a recall insurance policy is a critical step in building out your food companies’ risk management plan.
And more so, understanding your policy is key!
If you have more questions about your recall insurance program, let’s talk.
Pat O’Neill, a Food and Agribusiness Recall Protection Specialist. (330) 334-1561 | firstname.lastname@example.org.
This article was adapted from Zywave. This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.