Food Product Recall Insurance – ONLINE EXCLUSIVE

• Secondly, manufacturers can draft contracts between themselves and their suppliers that guarantee, in the event of a food safety scandal, the costs associated with it will be split between the supplier(s), the manufacturer(s), and possible third parties.

• Thirdly, manufacturers can also assume risk and purchase an insurance policy that will cover the costs associated with a food safety scandal and subsequent product recall.

One reason why some food manufacturers, particularly small to midsize companies, shy away from purchasing product recall insurance is because it’s expensive. Manufacturers think that if their standards are high enough, if their safety protocols are rigorous enough, and if their suppliers maintain those same standards, they will be safe from these scandals.

However, there is a problem with that reasoning: it depends too much on human nature, which history has shown us can be fickle. The owner of a food manufacturing plant could be the most ethical human being in the world, and yet one shipment of tainted eggs received from a supplier that was housing its hens in unsanitary conditions could be enough to perhaps irreparably damage the brand’s reputation. To follow that line of logic, it’s possible that the plant overseer for the plants that issued the infected eggs owned 10 plants, five of whom were run by managers who stuck to the safety protocols, and five that were run by less ethical managers, and that was enough to create this type of scandal.

In conclusion, food safety violations happen because the system depends on humans, and as such, is vulnerable to the defects of humankind. Violations will continue to happen until science perfects a way to completely automate the food production process, from raising livestock and farming to consumer delivery. Over time, this will begin to happen more often, due to the FDA’s increased authority to oversee the manufacturing process of American food producers. And as companies grow and increase their consumer reach, the cost of any food safety violation will increase exponentially.

Therefore, it would be a good idea to get the insurance because it’s not a question of if your company will have a food safety violation that may result in product recall, but when.

Schaefer is president and founder of Schaefer Enterprises Inc., a Manhattan-based insurance agency specializing in all aspects of business, personal, and program insurance. Reach him at [email protected].