Business Risks

How safe is our food?

At regular intervals, the media, together with well-informed consumers, refuel the debate on the safety of our food. Just how good is the quality of our food, and when does a food scandal lead to an insured third-party liability claim?


E coli, hormones and antibiotics in meat, dioxins in eggs, glass shards in apple sauce, milk powder contaminated with melamine, and fraudulent labelling – there is a long list of food scandals that have been the subject of public debate. The results of food defects can range from simply feeling wretched to suffering a bout of severe food poisoning. But the public risk perception is often not in proper proportion to the actual danger, which can be greater or lesser than perceived. And a food scandal does not always result in an insured third-party liability claim.

Developments in food safety

Every company involved in foodstuffs is now subject to a special duty of care and official supervision. A manufacturer is required to take every precaution along the entire production chain to ensure that its food is safe and correctly labelled. In 1962, the World Health Organization (WHO) and the Food and Agriculture Organization of the United Nations (FAO) joined forces to create the "Codex Alimentarius", a commission tasked with promoting food quality assurance. Today, over 180 states cooperate in this body on 20 different committees, working to ensure the safety of the food we eat. One of the commission's recommendations is the application of the HACCP approach (Hazard Analysis Critical Control Point) to guarantee food safety. HACCP was originally developed by NASA in 1959 for the manufacture of food for its astronauts. It is now considered the most important international safety standard in the foodstuffs industry. Its requirements have been mandatory in the EU since 2006 and must be integrated into each food company's quality management system.

Who is liable for defective products?

Under product liability, which throughout the world is normally conceived as strict liability regardless of negligence or fault, the manufacturer or importer is liable for defective products. Bodily injury and damage to property lie at the heart of product liability. If defective products that have been placed on the market pose a real and imminent risk of causing bodily injury, manufacturers and distributors are obliged to recall the goods in order to prevent injury. If necessary, this can be officially enforced.

Contaminated Product Insurance can cushion the financial risk

Increasingly stringent food safety requirements and growing quality awareness on the part of consumers are behind the high number of product recalls we see today. A further factor is the susceptibility of the food industry to malicious product manipulation and product extortion. For the companies targeted, these cases can threaten their very survival. Contaminated Product Insurance was developed to cushion the financial consequences in this area. It features various own damage elements to cover the following:

  • Recall costs
  • Loss of profits as a result of reduced sales
  • Advertising costs for product rehabilitation
  • Blackmail demands
  • Crisis consultancy costs

Underwriting tips

In addition to risk management, the underwriter's risk assessment needs to examine the processes for product recall and crisis consultancy. It is crucial to ensure that the policyholder's risk management system meets all of the HAACP requirements. This is because adequate preventive measures and an appropriate response to a potential crisis are the decisive factors in effectively minimising risks and costs. In terms of third-party liability, special consideration should be given to the following points when assessing the risks:

  • Most products are consumed relatively quickly because of their limited shelf life. This means that, if there is a product recall, you can no longer reach all the products affected.
  • Suppliers of ingredients face an increased risk in the field of recall insurance because enormous quantities of end products can be affected by a recall due to what is termed the "dilution effect".
  • In certain circumstances, undesirable or inadequately researched substances in food, and which remain in the body after consumption, may only have a negative effect on consumers after a period of many years. For the third-party liability insurer, this can represent a potential long-term risk, as well as a possible accumulation risk.

Premium development does not match the current risk

In recent years, premiums in this area have fallen. However, this does not reflect the actual risk. In addition, insurance terms and conditions have been steadily extended in recent years – on the one hand to take account of ever stricter consumer protection regulations, and on the other because the entrepreneurial risk is being increasingly transferred to the insurance industry. The criteria for long-term profitable business in liability insurance for food manufacturers are therefore to obtain sound advice on risk management and to exercise the utmost care with underwriting, particularly in relation to "innovative" cover modules and cost items. Munich Re constantly monitors risk developments in the foodstuffs sector, and advises its clients on all insurance-related issues.

You can read more on this topic in the latest TOPICS Magazine 2/2014, which can be downloaded here. TOPICS Magazine 2/2014

Munich Re Experts
Alfred Sattler
Alfred Sattler
Alfred Sattler is a qualified engineer and the consultant responsible for assessing liability risks in the Casualty Risk Consulting Unit at Munich Re.
Andreas Dettendorfer
Andreas Dettendorfer
Andreas Dettendorfer is a senior underwriter and writes facultative liability risks worldwide.