Food and beverage futures
Companies often underestimate the scale of a product recall risk, or believe they’re already covered by their general liability policy or product recall extension.
However, these policies often don’t cover the full costs of a product recall which can go much further than just the physical costs of recalling the product.
In this blog, we look at the reasons why product recall claims are rising, potential gaps in insurance cover and what you can do to manage and mitigate your risks.
Rising costs: High inflation and the knock-on effects of the conflict in Ukraine have increased the cost of commodities such as grain and oil, putting manufacturers under pressure to find more competitive suppliers. Some suppliers may cut corners to satisfy demand and maintain their profitability.
Mislabelling of products: Mislabelling is one of the main causes of product recall. In WTW’s Food and Beverage Survey 2024, 39% of respondents identified product labelling as a leading internal risk. In many countries, the law requires that people with allergies and food sensitivities are able to tell if products contain ingredients that may be harmful to them. This is hard for many businesses to manage as the list of allergens keeps growing.
Untrained staff: Many experienced staff have left the industry, leaving a gap which has been filled by contract workers and inexperienced staff. Some workers haven’t had the same level of training as their predecessors which increases the risk of production line errors, product failure leading to contamination, and the need for product recall.
Malicious damage: The risk of malicious product tampering, product extortion and intentionally impaired ingredients is increasing.
Put strong quality control systems in place
High standard quality controls are key in mitigating the risk of product recall. These include food safety testing following Hazard Analysis Critical Control Point (HACCP) food safety principles, supplier approval processes, auditing of suppliers and co-manufacturers, and root causes analysis of any losses to establish what happened, any remedial action taken and prevention measures.
Don’t assume it won’t happen to you
Even with the best control systems, recall events can still happen. Claims are rising, including for ‘never events’ that could cause serious bodily harm and are easily recognised and preventable. You still need to be prepared for scenarios where your systems fail to prevent an event that leads to catastrophic losses to your business.
56% said they had no specific insurance for product recall, suggesting that they’re relying on general liability policies to cover this risk.
Check the fine print
In WTW’s Food and Beverage Survey 2024, more than half of the respondents (56%) said they had no specific insurance for product recall, suggesting that they’re relying on general liability policies to cover this risk. However, in many cases this is limited to first or third party costs directly related to the recall. It may limit cover to products that were in your care, custody and control, or provide an exhaustive list of the risks covered. Extensions don’t usually provide broad enough cover to protect against the full cost of a recall which can include:
“If you’re relying on cover provided by your suppliers, check the fine print to make sure you know what’s covered and what’s not.”
Ben MacCarthy | Head of Casualty, Asia & Head of Real Estate, Hospitality & Leisure, Asia
If you’re relying on cover provided by your suppliers, check the fine print to make sure you know what’s covered and what’s not.
Where recall extensions exist in general liability policies, they are limited and don’t reflect the potential scale of losses and liabilities.
A single, large loss could exhaust your entire insurance limit for the year, leaving you exposed.
If you’re contractually obliged to have product recall cover, you could be in breach of the contract for the remainder of the policy period.
A standalone product recall policy with an aggregate limit instead of a single occurrence limit can be beneficial for large companies with multiple production facilities and extensive product ranges as it provides cover to draw on throughout the year.
A standalone product recall policy will also cover product rehabilitation, such as marketing and shelf-slotting fees.
Our product recall team can provide expert advice to help you navigate a fast-changing landscape, and find product recall solutions that fit your needs.
We can:
Increasing pressure to cut costs coupled with an exodus of experienced staff and an increase in malicious product tampering means product recalls in the food and beverage sector are rising.
General liability policies and product recall extensions don’t always cover the full cost of a product recall.
WTW can help you to review your insurance and make sure you have all the cover and support you need.
For smarter way to managing your product recall risk, please reach out to our specialists today.
