Claims can include loss of profit covering the 12-month period after the recall incident. In such cases, the claims adjustors would need to know the brand-in-question's profits prior to the incident; projected profits; and the actual profits. The product-recall policy would offset the dollar difference of the three, provided that the company filing the claim can demonstrate that its projections were reasonable. The company must also show proof of the rehabilitation costs it incurred while trying to mitigate losses.

In Chicago, Louis Roi, executive vice president and managing director of the Food & Risk Practice at Arthur J. Gallagher Risk Management Services, says he has never seen “real frequency” in Product Recall claims. The defining factor of food claims today, he says, is cost.

“I have seen seven-figure claims paid. I never saw that before,” he relates. “Some of it [was] pertaining to Salmonella incidents, where the government will shut you down.”

AJG's food claims are more often for accidental contamination, and much less often for malicious activity, Roi adds.

Ian Harrison, a partner with Lockton LLP in London, says both the number of insured losses and recalls have grown throughout the Product Recall segment.

Harrison, global leader for the brokerage's Product Recall practice, says a even a slight increase in claims frequency means bigger overall losses, and “there seems to be growth in the amount of product having to be recalled.”

Additionally, more recalls or claims puts increased pressure on the segment, as Product Recall claims are high-profile by nature, he says.

“When something goes wrong, it tends to be headline stuff—a big claim—and it's fairly instantaneous,” Harrison says. “You seem to know about a recall very quickly.”

A Food Contamination claim under Product Recall could become major news very quickly if the general public ingests bacteria from food and becomes ill, Harrison says. It's a much bigger news event compared to a Product Liability claim, which might not come to light for some time.

In the latter cases, “The product you've produced might not start to deteriorate for a number of years, so you can have some tail to that,” Harrison says.

Liberty International Underwriters has seen a slight increase in claims frequency and in volume, in both food and non-food manufacturing, says Lou Lubrano, senior vice president of LIU's Global Crisis Management division in New York.

The company writes first-party Product Recall policies, so all claims come directly from the insured as losses sustained, he says. The recall claims are somewhat specific.

“On the food side, it's commodities: stuff like spices and peanut butter,” says Lubrano. “And on the hard-goods side, there's a modest increase in bikes and sports equipment—a slight increase in frequency.”

The average claim size in LIU's Product Recall space hasn't changed significantly, “but the number of claims has increased slightly,” he says. The carrier's claims costs, he says, remain flat, however.

Increasingly sophisticated in-house safety procedures in the Food & Beverage industry are preventing some product problems from becoming serious claims at all, says Mark Colgate, head of product recall for independent broker R.K. Harrison.

While the brokerage has “a number” of Product Recall claims, many of those incidents do not necessarily result in a serious loss, says Colgate. A food manufacturer might catch a problem before it reaches the public's attention, for example, or an incident may turn out to be less severe than was initially feared.

“Maybe the client catches it before it gets out of their factory,” he suggests. “Or they test it and find some contamination.”

In which case, the product never leaves the warehouse, and the Food Contamination policy kicks in instead.