@Risk Underwriting Pty Ltd understands the unique exposures of the food and beverage industry. Whether your business is a manufacturer, wholesaler, retailer or a distributor, each activity has its own distinctive exposures to consider.  

Contract manufacturer provides manufacturing services for companies that sell products versus services. Contract manufacturing is a form of outsourcing that continues to be in demand, especially in the food industry, where businesses face different risks and challenges when compared to other manufacturing companies. From the raw goods stage through processing, packaging and distribution, operations count on a variety of tools, procedures, and people.  

There are many moving parts in a manufacturing operation, and many food companies run into high expenses and challenges with quality when handling their own manufacturing, because they may not have the resources to meet demand requirements.  

Considering manufacturing is a driving force in today’s economy, there is a growing need for insurance and risk management services. One solution that can be offered under a Liability policy is a Manufacturers’ Errors and Omissions extension designed to cover businesses for manufacturing mistakes or negligent service resulting in third-party financial loss without bodily injury or property loss. It also ensures defense in case of possible legal proceedings and bears the costs incurred.  

Errors and omissions insurance helps protect business from claims of: 

• Negligence
• Errors in services given
• Omissions
• Misrepresentation
• Violation of goods faith and fair dealings

 To reduce the probability of errors and omission, the following risk reduction measures need to be considered: 

Always sign a contract. Contracts need to be clear defining obligations, deadlines, and compensation, to manage expectations from the start. It is essential to work with a legal representative to ensure that the contracts do not compromise the position of the business in the event of an incident.  

Leave paper trail. Document all communication with the clients, as well as any verbal communications. A paper trail helps clear up disagreements when parties to the contract are confronted with dispute.  

Be transparent. Manufacturers are to keep clients up to date on their progress and of any potential pitfalls, reducing the probability of any surprises, building trust between all parties.  

Communicate throughout the job and keep the expectations realistic.

Quality Control Procedures are in place with the use of internal and external audits to check compliance.  

Unlike general liability, errors and omissions is endorsed on a “claims made” basis with a retroactive period. This means that claims made against businesses on or after a certain date is not eligible for coverage. The extended reporting period helps cover claims filed within a certain period after policies expire.  

By not purchasing Errors and Omissions, a company can be taking a serious financial risk. These types of losses are not covered under a general liability policy and even if you are not at fault, litigation is both time consuming and expensive.

According to the Australian Food and Grocery Council “the average food is moved in and out of refrigeration control 14 times before consumption. In one South Australian study, broccoli took 39 steps along the Cold Chain – having as many as 23 operators and 21 stages involved on the way – to reach consumers [1] The Cold Chain is a series of businesses involved in the manufacturing, shipping, storing, retailing and serving of fresh, chilled and frozen foods.”

Food producers and those involved in the supply chain therefore require a robust safety culture and Food Safety Plan. Risk management plans extend to identifying, analysing and prioritising a tailored solution and back up plan to minimise the disruption in the event of a disruption to any part of the supply chain. Insured’s will often only focus on their own business without considering the “what ifs”.

Considerations in the development of a Business Continuity Plan must include:

Key dependencies – critical plant and equipment, spare parts, power, alternate processing / storage capabilities

Contingency plan – documented strategy that can be implemented in the event of a loss or disruption

Customer / supplier dependencies – raw materials, alternate suppliers, alternate customers

In any business one of the key elements is to ensure that record keeping is of the highest standard. This is even more critical in the Cold Chain where products require storage in temperature-controlled environments. Any break in the chain can lead to product alteration, spoilage and, in extreme cases, illness for the consumer. Australians are estimated to be throwing away food worth $5.2 billion a year, including more than $1.1 billion worth of fruit and vegetables and $872.5 million worth of fresh meat and fish. [2] It has been estimated that contaminated food caused approximately 5.4 million cases of gastroenteritis annually in Australia. [3]

Depending on the circumstances, insurance policies may not cover these costs, highlighting the need for a rigorous risk management plan, including supply chain management.

An industry as diverse as food and beverage requires specialist underwriting knowledge and an understanding of the insurance solutions that are right for each circumstance. @Risk Underwriting aim to provide appropriate guidance and coverage to suit your needs.

[1] www.foodprocessing.com.au

[2] What A Waste, David Baker, Josh Fear and Richard Denniss

[3] Estimating foodborne gastroenteritis, Australia. circa 2000 (Hall & Kirk 2005)   

Food recalls can be costly and logistically complex, not to mention damaging to a company’s reputation. Whether it is a result of a criminal act or simply human error, it is occurring at an alarming frequency in Australia. Companies that fall victim to these incidents often incur staggering costs in damage control including restoration of profit and brand reputation. When a recall incident occurs, it can attract media attention which can have a disastrous impact on the public’s confidence in the affected product or brand.

The food and beverage industry is often confronted with challenges, some predictable and at other times unforeseen. Major contributing factors to recent recalls include deficiencies in the food production and monitoring processes such as non-compliance with current Good Manufacturing Practices (GMPs), failure to maintain food processing facilities and equipment, non-compliance with their own standard operating procedures, weaknesses in the Hazard analysis and Critical Control Points (HACCP) analysis and inability to track products through their supply chain.

Companies are turning toward finding solutions to protect themselves. Some businesses are turning to a recall expense extension under a standard product liability insurance policy, though this endorsement acts as nothing more than to indemnify the expenses associated with a recall and is not intended to provide a wide and comprehensive coverage protecting the company from potential disaster.

In 2015, a salmonella outbreak was traced to pre-packed salad produced by Tripod Farmers resulting in both Coles and Woolworths conducting a mass recall of the product. According to The Sydney Morning Herald article dated February 6, 2016, ‘Up to 100 people nationwide may now be affected by the salmonella outbreak linked to pre-packaged salad sold at Coles and Woolworths’.

At the time of the loss, the insured depended on the recall endorsement in the liability policy, but this unfortunately was not enough to alleviate the disaster they were facing. In an article within the Financial Review dated 14 November, 2018, it was claimed that ‘the recall had cost the company more than $15 million in total economic losses’ with action taken out against both the broker and insurer.

These add-on endorsements provide lower cost product recall expense coverage than a stand-alone product recall policy. The cost of a recall policy is a small price to pay when you compare it to the potential disaster businesses are confronted with.

A recall policy provides a more comprehensive solution:

➢ Advertising and promotional costs to launch the recall.
➢ Shipping costs to collect recall product.
➢ Third Party Recall costs.
➢ Product replacement and distribution costs.
➢ Loss of Gross Profit, up to 18 months indemnity.
➢ Reputation repair and management costs.
➢ Coverage for Customer Loss of Profits.
➢ Crisis response and consulting expenses, including public relations and recall consultants.

Whether you are a manufacturer, wholesaler, or retailer in the food and beverage industry, @RISK Underwriting provides coverage appropriate for your risk and provide entities with the freedom to focus and concentrate on building a successful and sustainable business.