Food contamination – are you prepared?

Posted by Nicole Eckersley on 6th April 2010

Product contamination can have a devastating impact on a company’s reputation, operations and financial performance. According to Michael Lincoln, National Underwriting Manager for Crisis Management, Liberty International Underwriters, consumers need to know that the products they purchase are safe and reliable. When a company fails to provide that certainty, it can quickly become a crisis.

“The cost of a product recall is widespread and can be incurred by the manufacturer right through to the wholesaler, distributor or retailer,” said Mr Lincoln.

A costly crisis

When an Australian fruit juice manufacturer discovered a potentially deadly outbreak of salmonella at one of its manufacturing plants, it was nothing less than a crisis. Around 500 cases of salmonella poisoning had been reported to authorities after people had consumed the juice, and the large scale of the poisoning invoked a major crisis response.

The medium-sized company, with a turnover of around $9 million, was concerned about the effect on customers, as well as its business. It worked closely with the health authorities to recall its products from supermarkets and smaller retail outlets, and was prevented from trading for six weeks until the source of the outbreak could be found. Of course, this had a negative impact on its brand, which lost market share immediately and for some time following.

Eventually, the salmonella was traced back through the supply chain to the supplier of the fruit. Nonetheless, the impact was felt primarily by the juice company, which suffered considerable losses, as follows:

Recall costs and Consultants/ Advisers costs:A$449,801.38
Advertising Expenses: A$40,000.00
Loss of profits: A$608,136.00

Imagine the difficulties this could cause for your company if it did not have insurance.

What type of cover do you need?

The Australian juice manufacturer case study demonstrates the unpredictable nature of contamination, often beyond the control of any one company in the supply chain. When handled correctly, though, the impact of such an incident can be limited and the damage minimised.

The good news is there is protection available. LIU ‘s Contaminated Product Insurance policy can provide companies in the supply chain with coverage for a broad range of Insured Events, including accidental contamination, government recall, alleged contamination , intentionally impaired ingredient, malicious product tampering and product extortion.

When a crisis hits, the costs start adding up, including recall costs consultant and advisor costs, business interruption, rehabilitation expenses, extortion costs and replacement costs. Mr Lincoln points out that preparing for the possibility of such an incident is vital.

“Preparing for a crisis is just as important as the response itself and companies should be looking at risk management options to minimise losses if, and when, a crisis occurs,” he said.

“LIU takes a risk mitigation approach to crisis management. Specialist consultants can help companies identify risks and prepare a crisis response plan. If a crisis does hit, the consultants we have arranged provide immediate advice and support”.

A company in crisis is under a microscope and needs to act swiftly and confidently to reassure consumers that everything is under control. LIU’s Crisis Management Solutions assist each client to be fully prepared, helping to protect its reputation and get back on its feet as soon as possible.