Food product recalls are growing, but recall insurance rates hold steady

During the first quarter of 2022, the number of recalled products (by unit) in the U.S. reached a 10-year high, driven by a major recall of baby formula as well as increased enforcement and inspections by regulators, according to Sedgwick.

Despite the spike in recalls, rates over the first two quarters of this year are slightly down across all categories (food, nonfood and automotive) on an average and median basis, according to Bernhard Steves, global specialty product leader, crisis management, at Aon plc. Carriers and capacity coming into the market have served to keep rates competitive.

“We expect rates to remain competitive as carriers work to retain their renewals in the face of increasing competition from newer market entries,” Steves tells PropertyCasualty360.com. “As COVID-19 rules have loosened up, regulators across all product categories have increased on-site inspections and market basket testing.  We are beginning to see an increase in the number of recalls and the units recalled. This will likely temper further rate reductions despite the influx of new capacity.”

Supply chain issues are also causing some manufacturers to take on more risks than usual and turn to spot market purchases to fill orders, according to Katie Ashcroft, U.S. product team lead for McLarens.

“Where manufacturers are usually highly cautious about their suppliers and get to know them well before accepting them and their product, when supply chains are strained manufacturers will sometimes source products from outside of their approved supplier base as they can’t afford not to get their product on store shelves,” Ashcroft says. “Once a manufacturer loses shelf space at the retail level, the retailer will fill that space with competitor products and it can be very difficult to get the space back.”

While product recall insurance requires the item to actually be recalled before the policy is triggered, product contamination insurance provides coverage for a contamination event that renders the product unsafe or dangerous if consumed or used, according to Steves, who notes contamination insurance is more common among food and beverage manufacturers. To trigger product contamination coverage, an item does not necessarily need to be the subject of a recall.

“For example, if a product has not yet been distributed, but is found to be contaminated, certain coverages under the policy may be triggered under contamination policies,” Steves explains.

Additionally, these policies can at times be extended to cover non-safety related events, he says.

“As an example, both types of policies may include coverage for ‘government recall’ events whereby the regulatory agency with oversight for the product may order or require a recall based on the potential for serious injury,” Steves says. “Environmental testing of a manufacturing site by regulators may uncover a potentially deadly pathogen, which leads to the agency requiring the recall of products although no product has actually been confirmed to be contaminated.”

Ashcroft says pollution is an emerging risk in these markets as well, particularly around potential contamination from heavy metals such as arsenic, lead and mercury.

“These risks are commonly pollution related because of contamination in the soils where food is grown or in pastures where cattle feed,” Ashcroft says. “FDA is actively working with the food industry on improving standards and raising the regulatory bar for manufacturers as relates to heavy metals.”

Undeclared allergens, bacteria driving events

During the past five to 10 years, undeclared allergens have been the largest driver of product recalls in the U.S., notes John Turner, director of crisis management at McLarens. Helping to propel these events are an improved ability to identify allergens and more people being diagnosed with allergies and sensitives.

“We now understand far more about how people can react to certain foods and know that issues with mislabeling, or when a product acquires traces of an allergen from cross contamination in the manufacturing process or from lack of effective allergen controls upstream, could have fatal consequences for some consumers,” Turner says.

Undeclared allergens have resulted in nearly 60 recall events and make up 45% of all food recalls in 2022, according to Agruss Law Firm. Nuts and milk were the most common undeclared allergens. During the past decade, the presence of milk accounted for 1-in-10 recall events. Among recent recall events, 6 in 10 recall events were caused by undeclared nuts in desserts, ice cream and candy.

Bacteria is the second biggest driver of product recalls, according to Turner, with salmonella, e-coli and listeria being the three major pathogen strains.

Agruss Law reports that salmonella contamination has triggered 28 recalls so far this year. Further, salmonella- and listeria-related cases comprised 33% of food and beverage recalls in 2021.

Peanut butter is the product that has seen the most salmonella-related recalls this year. However, vegetable products have the highest number of salmonella cases during the past five years, according to Agruss Law, which noted there has only been one recall for vegetable products this year triggered by salmonella.

Fresh produce is more susceptible to these types of recalls because the products don’t undergo a cooking process, which kills bacteria, explains McLarens’ Ashcroft. Further, these food items might be grown close to livestock farms, areas where wild animals live or areas that could have issues with contaminated irrigation water, all of which can provide paths for bacterial contaminants.

In addition to fresh produce, ready-to-eat products also face more contamination risks than heavily processed foods, such as canned products.

“Ready-to-eat foods do not require cooking. Heat and serve foods rely on the consumer to follow instructions to thoroughly heat the food to levels that will kill bacteria. Thus, there is a risk of such foods being undercooked and exposing a consumer to health risks,” Ashcroft says. “As a result regulators generally monitor producers of ready-to-eat and heat and serve foods more closely as the pathogenic risk is more inherent.”

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