Salmonella in German wheat, glass shards in Italian pasta, aphlatoxine in Brazilian peanuts. This may sound unappetizing, or downright dangerous, but it is part of day-to-day life in the food industry. Public warnings and, if necessary, recall campaigns ensure that these sorts of products do not reach our tables.
Saskia Janoske, Product Manager for Underwriting Liability at AGCS in Germany, believes this presents a growing danger to the food industry.
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The number of warnings for products that may be harmful to health is growing around the world
The cases cited above are the most recent examples of warnings generated by the European Rapid Alert System for Food and Feed (RASFF) that have been published on the website of the Institute for Consumer Protection and Food Safety [Bundesamt für Verbraucherschutz und Lebensmittelsicherheit].
The country that has determined a product-related risk reports these sorts of alerts concerning products manufactured in or imported to Europe to the network (RASFF). If the consumer has already purchased the affected item, a relevant official warning, which may take the form of a press release, will be issued by the manufacturer, importer, trader or the highest federal state authority responsible.
Between 2012 and 2015, the number of warnings against food items posing danger to human health increased by around 43%. Last year, RASFF recorded 750 warnings, which means an average of 2 warnings a day.
German federal states have been recording public warnings issued in Germany on www.lebensmittelwarnung.de since the end of 2011. According to the most recent statistics, 100 food safety warnings were issued in 2015. There have already been 12 warnings since the beginning of 2016.
According to a 2015 study by Swiss Re, the number of recalls in the US food sector has also been rising continuously since 2002.
New challenges for the food industry
Just like in other industries, food industry supply chains have branched out far and wide. Just a few years ago, food ingredients were based almost exclusively on the region - these days, many manufactures have outsourced production to other countries, such as China, or buy their ingredients there. The value chain has become more global, and therefore more susceptible to errors.
At the same time, the public is becoming increasingly aware of food safety, a phenomenon that is occurring on a global level. The growing middle class in the up-and-coming economies results in more consumer demand, as does the rising average age and the increased number of allergies in wealthier societies. NGOs are amongst those representing consumer interests, entrusting independent institutes with the task of investigating foodstuffs and communicating the results to the public.
Spectacular food scandals covered by the media bring the government on the scene: increasingly harsh measures are now being taken against violations - including in countries whose safety standards were perceived as low for a long time. The reformed food safety law introduced in China in October 2015, for example, significantly expanded the category of potentially liable parties. Prime Minister Li Keqiang recently reiterated his demand for "zero-tolerance", calling for rigorous penalties to counteract breaches of food safety laws.
Unsafe food items may potentially be the result of technological faults and human errors, but the food industry also faces the risk of malicious product manipulation, which is partly connected with product extortion. It is imperative that manipulated products be identified and, where necessary, withdrawn from circulation by means of a recall campaign as soon as possible.
It does not matter whether product defects that may be injurious to human health have been caused unintentionally or maliciously, whether products are therefore recalled by the authorities or by the manufacturer on a "voluntary" basis, or whether a ban on placing the product in question on the market is issued by the government - the consequences faced by companies remain the same: recall campaigns give rise to costs, which are often incurred in more than one country. On the other hand, the company risks compromising its image, which may result in consumers turning away from the product in question or from the brand, be it temporarily or permanently. In turn, this leads to a loss of profit, which may assume existential threatening proportions.
Regardless of whether the firm in question is a small or a large corporation - most recent findings have shown that this phenomenon can affect any company in the food industry.
What preventative measures can manufacturers take?
Awareness of how fragile a company's reputation is, especially in the food industry, and of the knock-on costs that may go hand in hand with a loss of reputation has resulted in a sharp increase in the demand for product contamination insurance (see below) in the last decade. As well as expecting of a comprehensive insurance cover valid in as many parts of the world as possible, many companies also want to receive practical help from a professional in the event of a crisis, such as the one described above.
red24 is one of the world's leading providers of help in the event of a crisis. Allianz Global Corporate & Specialty SE (AGCS) has been offering red24 services to its clients since mid-2015. The consultation process kicks off with preparation for possible recall campaigns: it is essential for internal processes to be clarified in advance, including by using crisis plans and simulating recall scenarios. "We can lend a helping hand to enable crisis management to be expanded in equal measure across the company, so that clear regulations are in place as to the individual responsibilities in the event of an emergency", explains Simon Weaver, manager of red24.
After all, as soon as a high-risk food item has entered into circulation, reacting in a quick and professional manner becomes the name of the game. Testing the products and searching for the root of the problem can take a number of weeks. The general public does, however, want and need to be swiftly informed of the possible risk, and the product has to be recalled quickly - something which poses a real challenge whenever several countries are affected at the same time. An international crisis consultant provides a valuable service in this respect.
Product contamination insurance lends itself well to covering the financial consequences of a recall campaign, of an official sales ban, a negative media report and product manipulation. This is subject to the condition that the food item in question is not "safe", i.e. injurious to health or unfit for human consumption.
First-party losses as well as third-party losses , e.g. notification, transport, storage and destruction costs, are also included in the scope of cover. Compared to the recall costs insurance (GDV (Association of German Insurers) model), the catalogue of costs covered by product contamination insurance is a lot more extensive. Analysis costs (including costs of chemical analyses), retail slotting fees spent in vain, costs of overtime and of additional staffing , so-called supermarket claims handling expensed, for example, are all automatically included in the scope of cover.
Moreover, the policyholder will also be reimbursed for expenses that arise as a result of consultation provided by red24 (in the event of a crisis as well as for preventative services ) along with the costs of restoring products or manufacturing new products and of lost sales revenue. If the loss of reputation for the product, the product group or brand results in a drop in revenue, the loss of gross profit and the ongoing costs associated therewith are also insured. Should it become essential to support the resale of products affected within the market with the help of special sales measures or if an entire substitute product must be launched on the market, the costs incurred for the relevant advertising measures will be covered by the insurance policy.
AGCS does not just offer this range of cover to companies in the food, beverage and cosmetics industry. Manufacturers of home and entertainment electronics can also benefit from a concept tailored specifically to their sector.
Saskia Janoske is a Senior Project Manager at AGCS Product Development Liability Central & Eastern Europe. A fully-qualified lawyer, she has been working at Allianz since 2000, has been responsible for developing and maintaining liability products at a local level, providing support to Underwriting and negotiating agreed broker wording. One of the key areas of her expertise is recall and product contamination insurance.
 Preliminary Annual Report 2015 des Rapid Alert System for Food and Feed, S. 8. http://ec.europa.eu/food/safety/docs/rasff_annual_report_2015_preliminary.pdf
 Regional recalls on a smaller scale are not publicized on the website, nor does statistics record recalls within the product chain, hence the statistics cannot be one-hundred percent accurate.
 Food safety in a globalised world, Swiss Re, 2015, S. 9 http://media.swissre.com/documents/Food_safety_in_a_globalised_world_final.pdf
 Food safety in a globalised world, Swiss Re, 2015, S. 23
 Radio China International, siehe http://german.china.org.cn/txt/2016-01/29/content_37694849.htm