Insuring food safety: What's on the menu?

The demand for food is growing. Globalisation has brought changes to the lifestyle and earning power of millions of people, including a shift in their eating habits.

The rising popularity of convenience foods and ready-to-eat meals underscores an increasing tendency for households to delegate food safety to producers and processing companies. The latter find themselves in highly complex supply chains, or “supply webs,” which are also products of globalisation and which seriously complicate the task of ensuring the safety and quality that both retailers and consumers expect.

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Although manufacturers in many parts of the world are applying higher standards and making safer food products than they were some years ago, food contamination incidents and product recalls still frequently occur. If not detected early enough, affected products can harm the consumers, while the companies concerned can suffer severe financial loss, lose market share or even go bankrupt.

The most common forms of food contamination are pathogenic microorganisms like salmonella or mycotoxin-producing moulds. Other contaminants include heavy metals, pesticides, allergens and additives – either illegal or in excessive quantities. Foreign bodies like plastic or glass in food have led to recent high-profile contamination cases. Insects have also found their way into food products. Food fraud can be another trigger of product recall and financial loss. In 2013, horsemeat relabelled as beef appeared in various products in Europe. The companies selling to the retailers and end-consumers had bought the “beef” in good faith, and there was no hygiene issue; but they still had to contend with financial consequences and reputational damage. Like other cases involving recall, this highlighted the need for complete supply-chain transparency.

Various organisations are working at the local and global levels to improve food safety, and progress is being made. When contamination and fraud issues do arise, insurance companies end up paying for at least part of the losses caused, and these can run very high. A contaminated product exported from its origin to different parts of the world can do widespread harm, resulting in costly accumulation exposure for the insurers. The insurance industry can help food producers and processing companies to assess risk, which enables them to take preventive measures, manage crises and handle claims. Appropriate policies can protect company assets by covering a large part of recall and liability expenses. As a reinsurer, Swiss Re has developed a modelling tool called the Liability Risk Driver, which is based on loss scenarios. It can calculate the potential costs of loss events for food (and other) companies and insurers.