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The number of recalls in the food and drink industry shot up by 50% in the UK last year, to a total of 84 compared to 56 in the previous year – potentially troubling news for product recall insurers.
In February, confectionary giant Mars announced a recall of chocolate bars affecting 55 countries including the UK, after a piece of plastic was found in a Snickers bar in Germany – a move that could cost millions.
“The supply chain in the food and beverage industry is much deeper than it used to be, that means you have many, many more touchpoints where things can go wrong,” Christof Bentele, head of global crisis management at Allianz, told Insurance Business.
That depth of supply chain – with some as many as 10 levels deep – means that traceability ‘from farm to fork’ is made extremely difficult to manage.
That’s a challenge for the clients themselves, but also for insurers who may have more than one client affected by one issue.
“We might pick up a supplier because that’s our client, then the ultimate manufacturer, then maybe one of the wholesale or retail stores because we are all over the place. That is an aggregation issue for us,” Bentele explained.
Malicious tamperings are a frequent occurrence in the food and drink industry too, he said, pointing to the famous Tylenol case as the “mother of all malicious tamperings.”
“These things happen, again and again, they happen all the time,” he said.
Currently the size of losses from these recalls are not as high as in some other areas, such as automotive components, but the added challenge with food and drink is the strong reaction from consumers.
“If there’s something wrong with a product, consumers will react emotionally. And emotionally is the opposite of reasonable… that is a risk for the insurance company, of course.”
When it comes to pricing, as a fairly new industry, food and drink recall insurance doesn’t yet have the same depth of data compared to the automotive industry, for example, and pricing will really depend on what it is the client manufactures.
“What determines the premium is really which type of product,” Bentele said, as well as the client’s supply chain, past claims history, and how issues were handled.
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