After sudan 1: can food firms afford to skip product recall insurance?

Related tags Food

Against the backdrop of the massive sudan 1 product recall in the
UK, certain to lead to cumbersome costs for key firms involved,
Lindsey Partos asks whether the food industry players can
afford to opt out of product recall insurance.

Last month the discovery of sudan 1, an illegal and potentially carcinogenic red colour, in a consignment of Crosse and Blackwell Worcester sauce made by UK manufacturer Premier Foods triggered a mass recall in the UK food chain of more than 600 processed foods on the shelves.

Too early to put a true figure on the cost of the recall, that includes sales loss, destruction, management time, and consultants fees plus the 'softer' costs like brand damage, estimates are rolling at €143 million.

In today's complex food chain exposed to risk on a daily basis contaminated products insurance - not obligatory by law - could be an essential way to cover potential vulnerabilities.

But Marcos Garcia Norris, assistant vice-president crisis management division at insurer AIG Europe estimates that about 70 per cent of food and beverage firms do not have this type of insurance.

"Most of the large firms do, and the SME's are starting to, but overall we predict that about 30 per cent of food and drink firms have contaminated products insurance,"​ he tells

Starting from a minimum premium of about £2000 a year for £1 million of cover, Norris says that in recent years price has been prohibitive for SMEs, but competition is now rife, pushing the prices down and opening up the market: "We're seeing rising number of firms asking for and buying this product".

According to AIG Europe, the average premium ranges between £8,000 and £10,000 for smaller companies.

Ultimately the package for first party recall (only pays expenses of food makers, not firms up or down in the chain) depends on a range of key factors - country, size of company and the type of food products. Meat manufacturers, for example, face larger risks in the chain, like salmonella or other food pathogen, as do all fresh products (dairy, for example) and those using glass packaging.

But all policies have two key threads: preparation and recall. For the former, a 10 per cent slice of the premium is available to food makers for a range of consultancy services involved in risk management - from laboratory screening to updating of regulations.

And for the latter, food makers have access to a 24 hour channel to advisers in the advent of a recall. A telephone call can kick off a chain reaction that may include emergency food testing, and the tracking of potentially contaminated products.

According to Norris, the standard that food firms tend to buy covers product recalls ranging from €1 million to €5 million, but the larger companies will buy up to €50 million or more.

All policies are multinational, crossing borders to go as far as the recall goes.

But even with this type of insurance in hand, a food maker is still vulnerable.

As Premier Foods sits at the centre of the largest food product recall in the UK's history, facing a potentially massive food bill, it would appear they are probably not covered for sudan 1 contamination.

"Carcinogenic illegal products such as sudan 1 will not be covered on the insurance market. Carcinogens are an exclusion, not only at AIG but for all insurers: they will not insure an illegal product,"​ says Marcos Garcia Norris.

Related topics Market Trends Food labelling

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