Editor for NZ Manufacturer Doug Green recently spoke to Dinesh Murali, Delta’s Senior underwriter and casualty lines manager, about their new Manufacturer’s Liability cover:
Delta’s Food manufacturers are increasingly confronted with new challenges and evolving risks because of rapid globalisation and expanding international supply chains. With a 200% and 62% increase in recall rates for food products in the last two years, this suggests a high correlation with increased sourcing of ingredients from overseas suppliers.
Dealing with suppliers from different jurisdictions adds another layer of complexity to the manufacturers risk portfolio for many reasons including the fact that food standards and associated regulation vary significantly. Manufacturers often take the view that the benefits of accessing new supply markets outweighs the risks because of the potential for higher margin that can be achieved but other side to that coin is that quality control can be variable and when things go wrong it can have devastating consequences. Product recalls cover a range of issues, including accidental contamination from pathogens, undeclared allergens and other foreign matter, malicious product tampering and incorrect labelling. Unfortunately, the 2018 recall numbers so far suggest that this is a trend that looks set to continue.
Dinesh Murali, Senior underwriter and casualty lines manager at Delta Insurance, says that recall events tend to be the biggest risk manufacturing companies face today. “Events such as product contamination or pollution incidents can be prohibitively expensive. Product recalls can have a substantial impact on the bottom line and can seriously damage a company’s reputation. Manufacturers need to make sure they are covered for such an event”, says Mr. Murali.
Delta have developed what they believe to be a New Zealand-first – liability coverage specific to the needs of food manufacturing companies, giving them comprehensive cover for such potential outcomes.
Says Mr. Murali, “Our package takes a modular approach. It carries some unique coverage sections that are usually not addressed in other policies and insures a range of food manufacturing-specific risks, such as product contamination and recall, covering the cost of removing and replacing the affected products, gradual pollution, financial losses to third parties and consequential loss to cover business interruption.”
“All it takes is a simple error in the expiry dates that makes your valuable product worthless. Good risk management is essential to mitigate against these incidents arising. Despite most NZ companies having robust processes and risk management around labelling there have still been incidents where the products were rejected by overseas authorities for getting the expiry dates wrong”.
In a food product recall situation its generally pragmatic to dump the product in the overseas jurisdiction rather than recalling the product, reprocessing and replacing it. The lost product value is not covered under your general liability insurance so having specialist product recall insurance can cover you for the value of goods and the cost involved in disposing of the products along with other recall expenses. In some cases there can also be a damages claim by your overseas distributor for their lost profits and this can also be covered under insurance.
Beyond the direct financial impact, manufacturers can also suffer significant reputational damage if they do not have the resources and expertise to proactively manage the complexity of a product recall. “The policy covers the costs of crisis management incurred to help mitigate negative publicity. We can help to provide manufacturers with all the legal, PR and other expertise they need in a crisis” says Murali, “and there is also the flexibility to package it with other coverages too, such as Cyber liability.”
Mr. Murali concludes: “While it’s important for manufacturers to achieve growth for their companies, it’s also important that they have the risk mitigation strategies in place to deal with the one-off nightmare scenario when things go pear-shaped. You can make hundreds of good decisions every day and then come unstuck with one event that can seriously impact the bottom line!”
“We are passionate about risk management are more than happy to work in partnership with manufacturing client’s insurance brokers to ensure that clients have the right risk mitigation strategy in place.”
Delta Insurance is a New Zealand-owned insurance provider, a Lloyd’s of London Coverholder and are backed by multinational insurer Allied World. They provide a range of specialty commercial insurance products and have an office in Singapore.