Insurance can provide assurance

Insurance can provide assurance

Nothing can completely make up for the anxiety and long-term damage that a recall can cause. But the right insurance coverage can assuage some of the financial pain.

Typically, general liability policies pay only for actual harm caused to consumers and retail customers by problematic product. But that can be only part of the expenses incurred in a recall. Costs that typically are not covered include: collecting and/or destroying the tainted product, advertising and other expenses in announcing the recall, and producing and/or distributing product on an emergency basis to replace the tainted items.

To cover these and other costs, processors have the option of insurance that specifically covers recalls. Taking the form of either a separate policy or an endorsement (supplement) to a general liability policy, recall insurance can fill in the gaps.

Betsy Silvestri, a product line specialist for the Liberty Mutual Group of Boston, calls recall coverage "sleep-type insurance-it lets the risk manager go to sleep at night."

' Some recall policies even pay for busi- ness lost as a result of a recall. For exam- ple, brand protection from Zurich U.S., Schaumburg, III., may cover both loss of profit relating to the recall incident and the costs to rehabilitate or re-establish a processor's reputation and a product's market share. With a client's accountants, Zurich's investigating accountants can pin point such a reduction in profit, taking into account other factors such as seasonality and business shifts.

Many of the policies address third-party situations where, for instance, an ingredient supplier furnishes defective product to a processor. That processor is on the hook for the recall expenses; often, his insurance company will turn around and try to collect from the supplier's insurer. If the supplier's policy includes third-party recall expenses, the matter can be settled more easily, with little to no litigation.

"We want to cover the recall expenses and many of the other associated costs relating to the retrieval or removal of a recalled product that the manufacturer incurs, and also the recall expenses incurred by your entire commerce stream," says Dorthea White, industry specialist with the enterprise risk business division of Zurich U.S.

Recall coverage has been part of the insurance industry for a long time, but a combination of aggressive salesmanship and favorable circumstances have intensified interest in it, insurance experts , say.

"What you've seen over the last three to five years is that as the [insurance] market continued to stay soft and com- panies have been looking for ways to generate premiums, coverage has , expanded and prices have come down," ) says Brad Murlick, a partner with Deloitte & Touche, Chicago. "Couple that with what's been happening on the news and in the media...[processors] say, am I doing everything I can to protect my company?"

Silvestri estimates that about 20 percent of the companies that call for quotes actually follow through and get recall coverage. Interest picks up after high-profile incidents, while "people tend to calm down if there haven't been any major recalls for awhile," Silvestri says.

Have a plan in place

The worst time to plan a recall is the moment you get a phone call telling you something's wrong.

Ideally, food industry executives and advisors say, a food company should have worked out far in advance what to do in the event of a recall. A clear, up-to-date plan can go a long way toward alleviating anxiety and eliminating wasted effort.

One of the first things a plan should determine is who's responsible for what duties. One person should be in charge if not the CEO, then someone who's reasonably familiar with all aspects of a company's operations, including purchasing, processing, quality assurance, distribution and consumer complaints.

Other functions should be divided among a response team, with areas of responsibility clearly relegated. Examples include distribution, production, legal counseling, account ing, sales, marketing and public relations. It's important to keep the list up to date, and to have guaranteed around-the-clock access to team members. It's also a good idea to have alternate team members for every function.

"We recommend you do it as a flow chart," says Gary Ades, director of Technical Food Information Spectrum, Atlanta. "That's because in times of emergency, nobody reads anything."

The team should be able to rapidly investigate the likely causes of a recall, including deviations in processing procedures or records; unusual consumer complaints; affected product codes; and customers to whom a given batch of product could have been shipped. The company should be able to match lots of finished product with not only production batches, but batches of raw materials. Companies that can't "end up having to recall more lots than they would if they had the capability to match the lots specifically," says Mary Ann Platt, executive vice president of RQA Inc., a Darien, I11.-based company that specializes in recall services.

The recall team's first responsibility is to gather all the facts firsthand. The source of the complaint will determine what facts need ' to be gathered. If it comes from a consumer, trained personnel should ask for the product code date, the nature of the illness or complaint, whether the consumer sought medical attention, where the product was bought, f when the packaging was opened, if any foreign material is available for inspection, and other pertinent information.

"There's a script that you follow," Ades says. "No. I is not to admit guilt, not because you want to avoid responsibility but because you don't have all the facts."

If the team decides to initiate a recall, the l plan should include steps for notification of customers and the appropriate state and fed eral regulatory agencies. Customers, warehouses and distribution centers should be available through prearranged procedures, and should be contacted via multiple means-phone, letter and e-mail.

Releasing information is a crucial consideration. It's important to do so as soon as feasible; saying "no comment' can seem like stonewalling. It's best to have one team member in charge of releasing information, Ades says: "The last thing you want to do is have several people speaking for the company, because they all have different information." Both the FDA and the USDA have procedures and standard formats for issuing press releases on their own; in addition, they may strongly suggest that companies issue their own press releases.

Getting extra help can ease the burden. Consultants can help with all aspects of a withdrawal, from interacting with complaining consumers, to rounding up the product, to helping develop and evaluate recall procedures. Provided by: <%=comapny1%>