Food Industry’s Globalized Supply Chain Creates Complex Exposures
By Sandra Usleman, Senior Vice President and Chief Sales Officer, USI
The increasingly globalized nature of today’s supply chain environment means even the toughest quality control
measures may not be enough to protect a
food manufacturer or supplier from risks
that could cause millions of dollars in lost
product, additional expenses and significant
In a recent survey, a majority of manufacturing firms —
approximately 77 percent — said they consider increased supply
chain complexity as their fastest growing risk in business continuity.
A separate survey conducted by the Business Continuity Institute
showed 70 percent of companies lacked visibility over their entire
Whether caused by a natural catastrophe, microbial
contamination, spoilage, labeling error or damage during transit,
the number of potentially disruptive events to products in the food
supply chain are considerable and unpredictable.
As a manufacturer, it's important to ask your insurance
brokerage firm what their capabilities are in delivering a risk
management program that can provide broad protection against
first-party physical loss of goods in the supply chain, from
ingredient origination through a post-customer delivery recall event.
Unlike typical transit coverages, companies dealing with complex
supply chains need broader risk protection for their products from
beginning to end, thus avoiding third-party insurance from common
carriers which causes delays in claim reporting and recovery.
Contamination and Spoilage Exposures
The following is one example of how a major food company
experienced a nationwide recall of its popular product. The recall
was due to contamination caused by accidental process deviations
at a co-pack facility operated by another company.
Although no injuries were reported, the company voluntarily
pulled more than 31,000 cases of its product off the shelves,
fearing the contaminated product could lead to a life-threatening
illness if consumed. This is not an unusual event. Unfortunately,
food recalls are in the news daily so check with your broker to
make sure your risk management program addresses these types
of unique exposures.
Damage to Products Isn’t the Only Cost
Financial loss often includes associated operating costs beyond
the value of the product. When reviewing your policy, you should
make certain those additional expenses are included, thereby
ensuring there is a recovery of costs and profits associated with a
Product Recall Events
The direct financial stress or damage to brand and reputation
caused by a product recall can put a company out of business or
force it to shut down operations for a long period.
Case in point: A 2015 recall by an ice cream manufacturer
following a listeria outbreak. The company was forced to close
production plants throughout the United States, lay off 37 percent of
its workforce and secure a multimillion-dollar loan in order to keep
The plant closures reportedly resulted in lost sales of
approximately $150 million plus costs connected with destruction of
the product, retooling of the factories and ongoing expenses to keep
the business alive. Public information reveals that the ice cream
company received a $125 million loan to recover from this product
liability case. Few middle market companies can recover from such
Does your program cover various costs associated with a recall,
whether driven by regulatory enforcement or your company’s own
actions? If not, you could be at risk of spending millions of dollars.
Government and Regulatory Action
Starting this fall, the FDA will begin enforcing compliance
deadlines under the Food Safety Modernization Act of 2011 focused
on preventing food safety risks, rather than responding to an event
after the fact.
The food supply chain remains a critical area of focus for the
FDA, which now has broad mandatory recall authority and the
power to detain administratively or to deny entry of food that poses
potential safety risks.
Enforcement of the following rules also begins in earnest:
• Importers should be able to verify that food produced on foreign
farms and facilities meets the same rigorous standards that
apply to domestic food.
• Larger facilities will be required to protect against intentional
adulteration intended to cause wide-scale public harm.
• Companies involved in the transportation of food by motor, rail
or sea — including receivers, loaders and even brokers — must
adhere to food safety regulations designed to minimize risks
Be aware of this new era of food safety enforcement and secure
an insurance policy that is designed to consider physical loss or
damage to goods when caused by government agency actions.
Doing so will help to prevent or mitigate a food safety hazard or
threat. Additional expenses related to such actions also should
be covered in your policy, including a clause that helps to prevent
losses that can cause a company to go out of business.
As today’s supply chain becomes more global and complex, your
risk management program is your first defense in protecting you
and your company’s bottom line. It needs to be up to the task and
able to target a wide range of risks — from raw material supplier
risks to extra expense risks to nanotechnology risks. Leveraging
a plan that includes best-fit insurance products and sound risk
management advice not only can save your company from a
potentially devastating loss, but it can increase profitability, foster
investment and establish long-term growth.