To varying degrees, psychologists might argue that “The best predictor of future behavior is past behavior”. History professors and aficionados similarly situated might submit; “If you want to attempt to understand current events, then you must first peer back to our history”.
Surprisingly, history has a lot to do with insurance company decision making when it comes to pricing for their customers. If you don’t think so, think back to the property markets post 1992, 2004 & 2005. Those respective hurricane seasons triggered resonating long term market effects inside a very stable property market that continue to influence decision making today. In a general sense, many insurance markets and products are very mature in their historical rating experience. However, that is not the case for contamination and recall insurance products.
How Much Is Enough
Food and Beverage clients want to ensure that they have sufficient liability limits to protect stakeholder interests if there is an outbreak and/or event. Traditional resources like Commercial General Liability (CGL) coverage are obtained. In tandem with the CGL policy, consideration is often times given to a separate Contamination & Recall policy to help eliminate the many gaps in coverage left by the CGL.
Determining the proper amount of coverage depends on many factors, and an initial focus should be geared toward exposure analysis. There are no magic wands here; no one-size fits all formula, just the need for sound planning on your part. Every business should have an annual conversation with its advisor team, including legal, accountancy and risk management, to determine what best meets the needs of your business.
How can we better address the question of appropriate liability limits? Let’s take a look at some statistics to help guide these thoughts. The Centers for Disease Control estimate that each year roughly 1 in 6 Americans (or 48 million people) get sick. Of those, 128,000 are hospitalized and 3,000 die of foodborne diseases. According to the CDC,
if we look at data from 1998-2008, Produce accounted for 46% of illnesses, Meat & Poultry accounted for 22% of illnesses; Dairy and Eggs 20% of illnesses; and Fish and Shellfish 6% of illnesses. It’s estimated that 54% of food and beverage companies experiencing a food borne outbreak are out of business eighteen months later. If you eventually fall inside this statistic, then you need to ask, how much coverage is enough to protect all stakeholder interests?
We’ve all heard that the best risk management strategy is avoidance. Stated another way; “Do everything possible to prevent risks”. That is not always plausible. After all, as entrepreneurs you’ve probably been taking risks most of your adult life. You can’t always prevent one hundred percent of risks, but you can eliminate negative risks and reduce risks to acceptable business tolerances.
While insurance carriers are very immature in contamination and recall, sound risk management practices are very mature and offer tangible strategies to help protect shareholder value and control your costs. Continue to be a leader and help create meaningful history. Don’t let you and your company become part of an unfortunate outcome leaving an adverse legacy for all involved.