Business Insurance, Product Recall

The Perfect Financial Storm—Recalls Simultaneously Hit Food Industry

Authored by an industry professional:

Joel Berrian, CPCU, ARM, AIC

General Mills’ recent expansion of its flour recall further extends the financial losses of affected companies as the US food industry suffers multiple, simultaneous ingredient-driven recalls. Numerous, nation-wide supply chains have recently been afflicted by recalls involving several types of contaminated ingredients including, flour, spinach, sunflower seeds, and frozen vegetables.

The insidious aspect of every ingredient-driven recall is the financial impact on each company in every affected supply chain. Because the contamination is found at the beginning of the supply chain, no company can avoid the commercial shock. Every company can be held liable for the resulting downstream losses. Moreover, the further back a company sits on any affected supply chain, the larger the tidal wave of incoming claims for associated costs and lost profits.

Recalls impact all companies on every affected supply chain in only one way, badly. The financial shock of a recall can take many forms. For many companies which are unprotected and unprepared, a single recall will result in catastrophic failure. Examples of companies that suffered a single fatal recall include Sunland, Jensen Farms, Topps Meats, and Menu Foods. For others, the financial consequences will doom the year’s projected profits and growth. The impact may also harm the company’s stock price, such as Kraft and Nestlé. The immediate loss
of customer trust due to a recall has significantly hurt companies including Yum! Brands and Chipotle. In the case of Blue Bell Creameries and Chobani, a recall resulted in the loss of family control of the business. The days of merely closing shop and re-opening under another name is no longer a viable option because of the FDA’s recent pursuit of criminal strict liability. Without a proper understanding of the involved risks and exposures, the C-Suite will have few options when a recall crisis hits.

Recall Solutions for Businesses

The Berrian Insurance Group and its strategic network of recall protection partners, including insurance companies, banks, supply chain track and trace, sanitation experts, crisis consultants and forensic accountants can assist companies in properly protecting a company’s brand and bottom line. Working with our strategic partners, our comprehensive insurance risk analysis identifies operational, supply chain and financial exposures and provides focused, fiscally-minded solutions. We have $50 million per policy underwriting authority from Lloyd’s of London for product contamination & product recall insurance. We work with food & beverage companies across the U.S.

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Joel Berrian is co-owner of Berrian Insurance Group and specializes in insurance for large risks with complex exposures such as mining and energy, product and professional liability, catastrophe exposed property, food and beverage, and global cargo and marine.