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Liability Insurance
Monday, November 1, 2010
Avoiding egg on your face…

The claims costs connected to the recent half billion-egg recall will be unprecedented and include liabilities such as business interruption and reputation damage. The recalls involved two farms in the State of Iowa, the USA, following findings of salmonella enteritidis, which have so far been linked to almost 2 000 illnesses in humans from May to July this year, and which number is expected to increase. So far there have been no reported deaths.

During the next 15 months, the US Food and Drug Administration will inspect the 600 largest egg production facilities in response to the recall. From pet food to tomatoes, the frequency and severity of food recalls are increasing, prompting greater awareness among food system, agribusiness and beverage companies to insure against such events.
Aon Risk Solutions recently released its 2010 Food System, Agribusiness and Beverage report, which highlighted the need for companies to reduce volatility in revenue, stabilise earnings and control pre-loss and post-loss risk exposures in today's global marketplace. The report findings will enable organizations to benchmark their risk management and risk financing practices against those of their peers.
"An accidental or malicious food contamination crisis can have a devastating impact on a company's reputation, profitability, customer loyalty and employee retention," said Richard L. Shanks, national managing director of Aon Risk Solutions' Food System, Agribusiness and Beverage practice. "As recalls become more frequent, organizations must continually assess their risk exposures and develop extensive risk strategies to ensure that they are prepared for unexpected events."
According to the report, top risks faced by the industry include:
• Supply system disruption
• Food safety and defence
• Reputation risk and brand damage
• Regulatory changes
• Sustainability

Many organizations overlook the impact suppliers may have on their public reputations. Recent financial security risk assessments conducted by Aon indicate that many suppliers' insurance programmes will not respond effectively to significant contamination events. In addition, the vast majority of ingredient suppliers and importers have no coverage for their legal liabilities should a customer suffer a business interruption or reputation loss caused by a contaminated ingredient. Most companies have coverage for bodily injuries associated with a contaminated food, but the majority do not have coverage for falling revenues caused by loss of consumer trust, damage to brand name or additional expenses associated with product contamination and recall.
Basic strategies to improve an organization's chances of recovery from a major contamination or recall incident include:
Pre-incident Planning. The first step in managing the risk of food contamination incidents is proper advance planning. Every company should have a well-documented and practiced product recall or retrieval plan, with a clear chain of command and communication. No amount of insurance can replace customer confidence lost due to poor planning and/or execution of a crisis or recall.
Crisis Management Planning. An appropriate crisis program goes beyond the pre-incident plan to coordinate all activities associated with a crisis. Team members may include the chief executive officer, general counsel, risk manager and representatives from security, marketing, public relations, quality control, human resources, distribution and manufacturing.

Please visit www.aon.com/fab to learn about additional findings from Aon Analytics' 2010 Food System, Agribusiness and Beverage Industry report.
 

Copyright © Insurance Times and Investments® Vol:23.11 1st November, 2010
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