Any company involved in food production saw its Product Recall risk greatly magnified last year with the enactment of the U.S. Food Safety Modernization Act (FSMA), says Louis Lubrano, New York-based senior vice president of global crisis management for Liberty International Underwriters (LIU).
Under FSMA, the federal government for the first time is empowered to order recalls of food products even when authorities only suspect a problem with a product but have no hard evidence, Lubrano says.
“That’s a game-changer,” he observes. “The issue is still evolving on what could trigger a recall,” Lubrano says, but for now, “it’s what the government believes” rather than what it knows is a risk.
The law stems, in part, from a series of recalls of various products since the mid-2000s. Some of the recalls involved eggs, peanuts, milk and dog food. The 2009 peanut recall alone affected 2,000 companies that used salmonella-contaminated peanuts from a single processing plant in Georgia.
Before FSMA was enacted, the vast majority of food processors did not purchase Product Recall coverage, Lubrano notes. For many companies with tight insurance budgets, the coverage was too pricey.
In addition, the coverage responded only when the contaminated food product either had already made a consumer ill or evidence showed that its consumption likely would cause illness. Under FSMA, the U.S. Food and Drug Administration does not have to wait for those developments to order a recall.
Insurers have responded by offering an endorsement, for additional premium, that will cover the cost of FSMA recalls, he says.
As a result, Lubrano says, the number of submissions for Product Recall coverage at LIU “has been spiking ever since [this law] was passed.”
LIU can offer up to $15 million of limits on a primary or excess basis, and Lubrano says he has seen buyers build programs with up to $70 million of limits.
Exclusions vary by industry and client, but every policy contains an absolute lead exclusion, he says.
Despite buyers’ growing interest in the coverage, “there are still a lot of companies that don’t buy this but need to and should,” adds Lubrano. He notes that while the largest brokers produce most of LIU’s Product Recall business, between 70 and 80 smaller producers each have brought LIU one or two policyholders.