When looking at the sheer number of recall notices issued by various regulatory bodies, it is easy to empathise with the environment in which manufacturers are operating. Consumers demand higher quality, safer food without a material increase in price. Manufacturers are under pressure from both their suppliers, trying to charge more and their customers, trying to pay less. All the while, regulatory intervention is a constant spectre hanging over the entire production chain.
Here are the statistics for recall notices issued by the Food & Drug Administration (FDA), the United States Department of Agriculture (USDA) and the UK Food Standards Agency (FSA):
- FDA: 419 (Inc. pharmaceuticals, but vast majority is food & beverage)
- USDA: 116
- FSA: 140
This gives a total of 675 recall notices issued for food and beverage products in the UK & US last year, which is almost two per day. Considering that some recalls include more than one product line, the total number of products affected by these will be greater than 675. Amongst those recalls will be base ingredient products such as flour, flavourings, and colourings. The difference in value between 50kg of a base ingredient versus the value of a final product in which that 50kg is used as an ingredient will be exponential. With this is mind, it’s likely that many manufacturers will suffer a recall event at some point in time, potentially resulting in severe financial stress. Despite this, 2017 does not seem to have been a particularly bad year, considering the number of recalls is down 20% on 2016.
With the multitude of recall events occurring, and, in our view, recall insurance purchasing on the rise, how has this affected the market? The reaction has been mixed, with a major insurer dropping out, some reigning in of underwriting appetite, and new carriers entering. Underwriting results at Lloyd’s for 2017 are tracking well versus a disappointing 2014, a disastrous 2015 and a worrying 2016.
Looking to the year ahead, there are regulatory initiatives on the horizon which could be concerning for manufacturers. For example, the FDA Commissioner Scott Gottlieb has announced a drive to increase the efficiency with which a recall is conducted. For manufacturers this may mean naming, as standard procedure, the retailer outlets where affected products have been sold. The intent is to speed up consumer’s ability to check whether they have purchased affected product, however it is doubtful that identifying a manufacturer’s retail customer publically is going to assist in the amicable and reasonable resolution of a claim for indemnity between the two. In the UK, the FSA is planning to modernise its supervision of manufacturing firms over the next few years, enhancing its trading permissions procedures and registration requirements. Furthermore, they will seek to certify and recognise the various audit companies which would mean less regulatory oversight for a company with a clean audit, but possibly more invasive and stringent auditing and heavier oversight for a firm with a poor audit score.
2018 will be a great year for the recall team here at CFC. We are looking forward to continuing to provide a quick and efficient service to our brokers. We’ll maintain our adaptability, helping you find solutions for the price-sensitive clients and the increasingly sophisticated buyers. We’re going to continue to expand and tailor our product offerings to keep pace with the times and develop innovative cover for emerging risks.
Thanks for supporting us in 2017, here’s to a great 2018!
