Insurance Marketplace Realities: Product recall and contamination insurance

2018 Spring Update on Commercial Insurance in North America

April 12, 2018

Price prediction

  Trend Range
Product recall and contamination insurance: No change or slightly up Flat to +5%

Key takeaway

No longer are companies saying, “It will never happen to us.” It’s now a question of when and whether businesses are prepared to handle the unique challenges created by product recalls.

Several factors are raising the risk of product recall for manufacturers and producers: more complex products and supply chains, regulators across the world getting tougher, detection methods becoming more sophisticated, and tighter contractual requirements. Despite carrier consolidation and fluctuating risk appetite, this maturing insurance product has broadened the perspective on consumer safety and brand reputation.

Compromised supply chains are having substantial impacts on national brands. Some recent scenarios include:

  • A contract manufacturers cheese tests positive for Listeria monocytogenes, leading to the recall of three cheese brands, including one premier national brand.
  • A massive pet food recall is initiated due to contamination from a single supplier’s minor ingredient.

Contracts requiring suppliers to include recall in their insurance portfolios are becoming more prevalent.

  • Auto manufacturers are passing recall responsibility to tier I and II supply companies.
  • Large retail distributors are cognizant of recall exposures impacting store sales.

Governmental regulators continue to flex their muscles.

  • Officials are better equipped to impose regulations in terms of staffing and authority.

Advancements in food science are improving food safety and increasing loss frequency.

  • Health officials are constantly developing ways to investigate and solve outbreaks faster, such as utilizing data captured through whole genome sequencing.
  • Possible sources of food contamination continue to be identified publically before investigators have determined the causes with certainty, potentially complicating company response.