Food Recall Insurance Focuses on Preventative Control Measures & Risk

the one minute takeaway

An increasing number of recalls and differing provincial regulations have led to significant confusion in the food industry. The Safe Food for Canadians Regulations were developed as a response, and they are designed to help Canadian food businesses align with key trading partners, such as the United States and the European Union. Making sure you know where your ingredients come from and whether your suppliers are meeting the new standards can help you avoid costly problems down the road.

By David Laks

Every year, one in eight Canadians is affected by food poisoning.¹ The more serious cases lead, on average, to 11,600 hospitalizations and 238 deaths. And the economic cost of food-borne illness – on an annual basis – is nearly $3 billion.

Since 2006, the volume of fresh produce imported into Canada has nearly doubled. Imports from South America, Asia, Russia, and the Middle East have made Canadian food more varied and interesting, but they have also opened the door to contaminants that put food safety at risk. In fact, in the last eight years there have been 84 produce recalls – fully 70% of all recalls during this time period.² And the cost of a Canadian food recall can fall anywhere from $137,000 to nearly $19 million.³

The Safe Food for Canadians Regulations (SFCR) is the government’s response to rising numbers of product recalls. Previously, there were 14 separate sets of regulations, causing confusion in the industry. The new regulations standardize the requirements across the country in an effort to simplify the guidelines and decrease the number of recalls. The regulation is also expected to bring the Canadian food industry up to international standards in a few key areas, including licensing, traceability and preventative control measures.

Almost every company involved in food manufacturing will require a license. (Some licenses will be required immediately, while others will be phased in over the coming months.) All licensed businesses will appear in the Canadian government’s online database. This means that an organization looking for a business partner will be able to find your business more easily – and will know that your organization conforms to important standards.

To get a license, food manufacturers will have to meet certain expectations, most importantly, traceability and preventative control measures.

Traceability

A TV dinner looks like a simple meal, but it may be more complicated than it looks. Where is the meat processed? Who grows the mixed vegetables, and do they come from different suppliers? Which grocery stores will carry the completed meal?

Any food company needs to be able to trace their products following the “one step forward, one step back” principle. In other words, the company must be able to provide information about where each of the food products comes from, but it also must be able to report where they are selling those products after they are completed.

Traceability is an integral part of food recall practices. The Regulations will make it easier to determine where the contaminated food components originated and which stores carried them. In fact, one of the requirements is that a company has to be able to provide that information within 24 hours of reporting the outbreak.

Preventative Control Measures

Following a well-thought out and well-executed product recall plan from the very first report of a problem can save lives, minimize the damage to your company’s reputation and reduce your business’ out-of-pocket recall expenses. Most medium to large size organizations already have something in place, but the new regulations will help standardize procedures.

For a smoother recall, follow these best practices:

Build a recall team. Identify one person as the recall coordinator, responsible for managing and sustaining the recall together with the rest of the team.
Establish a process. In this step, your recall team will gather information and evaluate the extent of the risks or hazards occurring with each product.
Determine the scope. Your plan should outline how you’ll determine the product that should be recalled (such as examining serial numbers or batch numbers), as well as what you’ll do with it (such as disposal or repair and redistribute).
Maintain good records. Thorough production and distribution records will be key to finding your damaged product and alerting retail outlets in recalling the product.
Communicate effectively. Consider how and through which mediums your recall team will communicate with the public. This can include government agencies, your corporate website, trade safety notices, consumer hotlines and paid notices, as well as costs related to cancel current advertising, media and promotional schedules.
Control, Transportation and Return. Your plan should include an outline of how you’ll recoup the product in question, including any variations for time of year or location of the product.

Focus on Risk

Regardless of how well an organization complies with these standards, there’s a lot at stake. A smaller infraction could lead to a fine. But for a bigger problem, a business could be shut down entirely – the business could lose its license. On the other hand, going out of business could also stem from an extended business interruption or an intense period of negative publicity due to a recall.

Protecting your business and yourself from loss due to a product recall is imperative. You may have to utilize multiple policies to achieve the necessary coverage. Here’s a quick look at relevant policies and the types of coverage they offer. As always, remember that policy inclusions and exclusions will vary based on your company size, product liability and risk and industry.

Product Liability coverage – Typically an extension of your General Liability policy, Product Liability will cover your expenses (i.e., lawsuits, medical and financial damages and settlements) when your product hurts someone, makes them sick or damages their property. Most General and Product Liability policies exclude product recalls.
Product Recall coverage – Product Recall coverage will pay for logistical costs of the recall itself, including expenses related to collecting recalled products from the public, costs to replace or reimburse the public, fines paid to government agencies because of the recall, disposal of recalled products, related public relations costs and more.
Contamination coverage – Should your product be recalled due to an accidental or malicious contamination of food and beverage, pharmaceuticals, cosmetics, etc., contamination coverage will cover product recall costs, including laboratory analysis and product transportation, related public relations costs and more.
Business Interruption coverage – One of the greatest fears of a product recall is the ensuing business interruption. This could include an interruption to the flow of product to the customer, loss of marketplace share and, therefore, a potential downturn in sales related to the reputational harm done by the recall. BI coverage will cover the loss of income, sales and gross profits due to the product recall.
Directors & Officers coverage – If your directors and officers or individual employees are specifically named in a lawsuit related to the recall, you’ll need Directors & Officers (D&O) coverage to back them.

Having an experienced broker to negotiate the numerous enhancements and nuances in food recall insurance policy language is critical to ensuring you have the coverage you need to minimize liability. Contact your HUB Agribusiness & Farm specialist for more information on instituting best practices in your business as well as policies and enhancements you need to minimize loss during a product recall.

^1,2,3 - Regulatory Impact Analysis Statement on the Safe Food for Canadians Regulations