Canadian Underwriter

Number of food recalls per year in the U.S. has almost doubled since 2002, new Swiss Re study finds

July 15, 2015   by Canadian Underwriter

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Just over half of all food recalls cost the affected United States companies more than US$10 million, with losses of more than US$100 million possible, according to a report released on Wednesday by Swiss Re.

Food Safety in a Globalised World found that the number of recalls per year in the U.S. has almost doubled since 2002, with food contamination costing health authorities US$15.6 billion per year. The increase has been influenced by regulatory changes and an increasingly globalized food supply chain, the report noted. [click image below to enlarge]

52% of all food recalls cost the affected U.S. companies more than US$10 million each

A single food recall can lead to severe financial loss and reputational damage for food producers. In total, 52% of all food recalls cost the affected companies more than US$10 million each, and for 5% of companies, the estimated recall cost was US$100 million. “This figure excludes the reputational damage that may take a company years to recover from,” Swiss Re noted.

Nearly 9 million Americans became sick from contaminated food in 2013 alone, with over 50,000 hospitalized and 2,377 fatalities.

The report noted that the business impact of food contamination could include product disposal costs, business interruption, customer reimbursement, transport and investigation costs, external professional fees, sanitizing production facilities, warehousing costs and internal time and expense.

But the report noted that risk management tools to ensure safe food production exist. “They must be applied and adapted to ever more complex global markets and supply chains,” Swiss Re added in a statement. “Adaptation also means taking lessons learnt to places where they are yet unknown and tailoring them to local conditions. The experience insurers gather through their claims experience is an important resource for knowledge sharing for client companies.” [click image below to enlarge]

The number of food recalls in the U.S. has nearly doubled since 2002, the report found

Roland Friedli, risk engineer at Swiss Re and co-author of the report, said in the statement that food recalls can be caused by something as simple as a labelling error on packaging, or as complex as a microbial contamination along a vast globalized supply chain. “Yet even a simple mistake can cost a food manufacturer millions in losses and even more in terms of reputation,” he said. “Insurance and sound risk management are essential for keeping affected businesses afloat.”

Alongside expertise in risk management, insurers can also offer products covering recall and product liability risk, which mitigate any loss incurred and ensure that companies remain in business, Swiss Re suggested.

“Insurance as part of a company’s enterprise risk management will help lessen the financial impact and recover faster from catastrophic food safety events, by providing professional claims management services and financial protection,” the report said. “Beyond the financial security insurance provides by compensating consumer’s product liability claims and firms’ recall expenses, insurance companies help producers improve their safety systems by sharing the know-how they gained by auditing risk management systems worldwide.”

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