2015 emerging trends in product recall and contamination final

Risk. Reinsurance. Human Resources.

2015 Emerging Trends in Product Recall and Contamination Risk ManagementA crisis may be unpredictable, but it should not be unforeseeable

Aon Risk Solutions Specialty | Crisis Management

1 2015 Emerging Trends in Product Recall and Contamination Insurance

The Year in Review — Product Safety and Recalls . . . . . . . . . . . . .4

Product Contamination and Foodborne Illness . . . . . . . . . . . . . . . . . . . . . 4

Restaurant and Food Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Automotive Vehicles and Equipment Recalls . . . . . . . . . . . . . . . . . . . . . . . 5

Non-Food Consumer Products Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Criminal Prosecution of Product Safety Violations . . . . . . . . . . . . . . . . . . . 7

Regulatory Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Food Safety Modernization Act Update . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The Safe Food Act of 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Technological Advancements in Food Safety and Outbreak Tracking . . . 8

USDA Ground Beef Safety Procedures Updated . . . . . . . . . . . . . . . . . . . . 9

Industry Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Social Media Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Economically Motivated Adulteration of Food and Food Ingredients . . 11

Terrorism and Cyber Attacks on the Food System . . . . . . . . . . . . . . . . . 11

Supply Chain Integrity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Product Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Brand / Reputation Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Claims Preparation Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

International Program Placements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Carrier Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

2014 Loss Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Consolidating and New Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Lower Capacity per Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Adverse Publicity and Government Recall . . . . . . . . . . . . . . . . . . . . . . . . 20

Market Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

U .S . Domestic Carrier Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

London and the Lloyd’s Carrier Review . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Bermuda Carrier Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

2015 Global and Contamination Market Capacity . . . . . . . . . . .24

Product Recall and Contamination, Analytics & Modeling . . . .26

Claims Preparation, Management and Advocacy . . . . . . . . . . . .28

Aon Risk Solutions – Global Product Recall Practice . . . . . . . . . .29

Table of Contents


2015 Food Safety Risk Management Trends

Industry Trends Regulatory Trends

Product Trends Carrier Trends

• Social Media• Economically Motivated Adulteration• Terrorism and Cyber Attacks• Supply Chain Integrity

• FSMA Implementation• Safe Food Act of 2015•Whole Genome Sequencing• Strengthened Beef Procedures

•Consolidating and New Capacity•Capacity per Risk• Adverse Publicity

• Brand/Reputation Programs• International Program Placements•Claims Preparation Expense


The Year in Review – Product Safety and Recalls

Product Contamination and Foodborne Illness

Unsafe products are a significant and growing risk

to the public and corporations . To understand

the potential scale of the problem, consider that

48 million people —1 in 6 Americans—will likely

get sick from foodborne illness this year . Roughly

128,000 of those will need hospitalization and three

thousand will die . For non-consumable products,

the U .S . Consumer Product Safety Commission

(CPSC) estimates that deaths, injuries, and property

damage from non-food consumer product incidents

cost the nation more than $1 trillion annually .

Further, the past year has been the worst for

recalls in U .S . automotive history with nearly 1 in

5 cars and trucks having been recalled in 2014 .

Specific to consumable products, the U .S .

Department of Agriculture’s (USDA’s) Economic

Research service released new data in 2014 that

conveys the potential costs associated with 15

major pathogens in the U .S . that are responsible

for more than 95 percent of the illness and deaths

in the United States . Those major pathogens

alone will cost the U .S . economy more than

$15 .6 Billion annually . While the data provides

an estimate of costs associated with each specific

pathogen, this research does not include any

loss of consumer confidence in a brand or

business, associated recall expense, or charges

stemming from litigation, which can potentially

be devastating in the event an outbreak occurs .

In 2014, the Centers for Disease Control and

Prevention (CDC) released its annual report on

food safety, produced by the Foodborne Disease

Active Surveillance Network (FoodNet) . Each year,

FoodNet reports on the changes in the number

of people in the United States sickened with

foodborne infections that have been confirmed

by laboratory tests . While rates for Salmonella

have shown improvement, others, including

those for E .coli appear to be getting worse .

Restaurant and Food Service Concerns

One in five restaurant workers has reportedly

worked at least once in the previous year while sick

with vomiting or diarrhea . In addition, workers only

washed their hands in 27 percent of activities for

which it was recommended . Until the proper food

safety measures are utilized in the United States,

incidents of foodborne illness occurring from food

service or restaurant operations will not be reduced .

Two of the biggest culprits in causing sickness

in food service establishments are Hepatitis A

and Norovirus . Hepatitis A is a communicable

disease that spreads from person-to-person . It

is spread almost exclusively through fecal-oral

contact, generally from person-to-person, or via

-20%

Pathogen

Campylobacter

Listeria

Salmonella

Shigella

STEC* Non-0157

STEC* 0157

Vibrio

Yersinia

Percentage change in 2013 compared with 2010 − 2012

*Shiga toxin-producing Escherichia Coli † Not a statistically significant change

www.cdc.gov/foodnet April 2014

Decrease Increase

-10% 0%

2% †

-3% †

-9%

14% †

8% †

16% †

32% †

7% †

10% 20% 30% 40%


contaminated food or water . The CDC estimates

that 83,000 cases of hepatitis A occur in the

United States every year, and that many of these

cases are related to foodborne transmission .

In May of 2014, an employee at a Red Robin

restaurant in Pennsylvania tested positive for

Hepatitis A, potentially exposing up to 5,000

patrons who dined at the restaurant from May

8 to May 16 . Health officials administered more

than 2,300 doses of the Hepatitis A vaccine . In

addition to the cost of vaccination (estimated at

$50 per individual), restaurant and food service

establishments also face the potential loss of

customer confidence and related sales declines .

Incidents of Norovirus dwarf the number of

sickness attributable to Hepatitis A . The CDC and

Prevention estimated that there are 19 to 21 million

cases of Norovirus infections each year . This virus

generally arises from infected workers who touch

ready-to-eat foods with their bare hands . The CDC

reported that about 5 .5 million cases of Norovirus

have been food-related . While outbreaks on cruise

ships may get the most press, these incidents only

account for 1 percent of all reported outbreaks .

In a related (and ironic) incident, 216 attendees of

the popular 2014 Food Safety Summit were sickened

during their visit to Baltimore . While food safety

was the topic of discussion, food safety measure

may have unfortunately not been in practice . The

pan-seared chicken breast served by the Baltimore

Convention Center’s exclusive caterer was likely

contaminated with Clostridium Perfringens,

a spore-forming gram-positive bacterium

commonly found on raw meat and poultry .

Automotive Vehicles and Equipment Recalls

The average automobile has over 30,000 parts,

any of which could fail . The nature of the failure

may require the recall of the part in order to

eliminate or minimize the potential for bodily

injury or property damage . The defective part

may be as a result of a manufacturing problem,

use of substandard materials, installation errors

or may lie with the design of the part itself .

The past year has been the worst for recalls in

U .S . automotive history . Over 50 million cars and

trucks -- about 1 in 5 vehicles on the road -- were

recalled . This figure represents more than 5 times

as many vehicles that were sold in the U .S .

As a result of these recalls, the public and media are

increasingly focused on the corporate responsibility

being taken by the automotive industry . Damage to

a company’s reputation and brand can be extreme

when inaction or indifference is perceived . After

perceived government inaction on past recalls,

the National Highway Transportation and Safety

Administration (NHTSA) will most likely increase

the number of recalls . While the industry focuses

on improvements in design, manufacturing and

testing, other factors such as the $1 .2 billion

fine against Toyota over missteps in the recall

of 10 million vehicles will likely result in auto

manufacturers recalling on the side of caution .

2008

10,000,000

0

20,000,000

40,000,000

30,000,000

60,000,000

50,000,000

Number of vehicles recalled

20102009 2011 2012 2013 2014


While virtually all auto manufacturers have been

affected by these recalls, none has suffered as

significant damage to its reputation as General

Motors . In 2014, GM alone accounted for over half

of the 54 million vehicles recalled, with 29 deaths

being attributed to faulty ignition switches .

Non-Food Consumer Products Safety

The U .S . Consumer Product Safety Commission

is charged with protecting the public from

unreasonable risks of injury or death associated

with the use of thousands of types of consumer

products under the agency’s jurisdiction .

Deaths, injuries, and property damage from

consumer product incidents cost the nation

more than $1 trillion annually . CPSC’s work to

help ensure the safety of consumer products has

contributed to a decline in the rate of deaths and

injuries associated with consumer products .

In 2008, Congress passed the Consumer Product

Safety Improvement Act, the most comprehensive

overhaul of product safety laws since the creation

of the Consumer Product Safety Commission in

1972 . The Consumer Product Safety Improvement

Act of 2008 was spurred partially by major recalls

that occurred during the summer months of

2007, including the recall of over 18 million toys

manufactured in China . U .S . regulators sought to

tighten their authority over product safety . This

law imposed new testing and documentation

requirements, and sets new acceptable levels of

several substances . The Act also increased fines

and specified jail time for some violations .

Toy safety has been an example of the Act’s

success . In 2008, the year the Act passed

into law, there were 172 toy recalls, 19 due to

lead . In 2014, there were only 30 toy recalls

with just one being attributed to lead .

One significant non-food consumer product recall

of note was the recall of over 7 million Keurig coffee

brewers in the U .S . and Canada due to potential

burn hazards . Owners of affected MINI Plus Brewers

were provided with a free repair kit to resolve the

potential issue . Keurig’s share price dropped more

than 3 percent after the recall was announced .

The U .S . Senate confirmed the appointment of

Elliot F . Kaye as the 10th chairman of the U .S .

Consumer Product Safety Commission (CPSC) in

July to a term that expires in October 2020 . Mr .

Kaye has identified three major areas of focus

for his term . First, the CPSC will attempt to work

more closely with the industry and voluntary

standards organizations to develop standards

for products that are not currently covered by

regulations and as a result have not kept with

advances in safety technology . Second, Mr . Kaye

will continue to prioritize brain safety in youth

sports during his tenure . Last, Mr . Kaye will

emphasize strengthening CPSC’s line of defense at

U .S . ports to keep dangerous imports out of the

hands of unsuspecting consumers . He noted that

he will be transparent and accessible in directing

the operations of the agency, and will expand

the use of open data and social media to connect

with and empower consumers and businesses .

2008

50

0

100

150

200

Number of toys recalled

20102009 2011 2012 2013 2014

Toy Recall Toy Recall with Lead


Criminal Prosecution of Product Safety Violations

The past several years have seen an increase in

criminal prosecution for food safety violations . Most

recently, in June of 2014, the owner of the company

behind the massive 2010 egg recall agreed to a

plea deal calling for $6 .8 million in fines for selling

eggs with false labels . The government blamed its

tainted shell eggs for a 2010 Salmonella outbreak

that sickened thousands and led to the recall of over

500 million eggs . Quality Egg LLC, once one of the

nation’s largest egg producers, faced allegations

of bribing a U .S . Department of Agriculture

inspector to approve sales of poor quality

eggs, selling misbranded eggs and introducing

adulterated food into interstate commerce .

On January 28th, 2014, brothers Eric and Ryan

Jensen who owned and operated Jensen Farms in

Colorado, each received five years probation and

six months home detention and were ordered to

pay $150,000 in restitution . Jensen Farms, linked to

one of the deadliest food outbreaks in history, was

found responsible for the listeria-tainted cantaloupe

that injured 147 persons and killed 36 consumers

in 2011 . Investigations by the FDA and the CDC

determined that the defendants failed to adequately

clean their cantaloupe . They then maintained the

fruit in unsanitary conditions . Both defendants

pled guilty to six counts of adulteration of a food

and aiding and abetting . The multi-generation

family business filed for bankruptcy in 2012 .

Meanwhile, the sentencing of Peanut Corporation

of America (PCA) executives continues to drag

as attorneys for all three defendants in the

criminal prosecution jointly asked for an indefinite

continuance for objections to all pre-sentence

reports . Former officials at the now-defunct PCA

were found guilty on a total of 98 federal felony

counts on September 19th, 2014 after a near two-

month trial . Stewart Parnell, the one-time owner

of the three-state peanut processing business,

was found guilty on 67 counts charging fraud

and conspiracy, along with intentionally shipping

tainted food . His brother, Michael Parnell, was

found guilty on 30 felony counts, which included

his participation in the conspiracy . Mary Wilkerson,

who was quality-control manager at PCA’s Blakely,

GA, plant, was found guilty on one of two counts of

obstruction of justice . Peanut products processed

at the company’s Blakely, Ga . facility were linked

to the 2009 Salmonella outbreak that sickened

more than 700 people and may have contributed

to nine deaths . The outbreak resulted in the

recall of thousands of products by hundreds of

different companies including ice cream, cookies,

cakes and confectionary products . According to

the Justice Department, the four former officials

misled investigators after they allegedly fabricated

quality assurance labels and continued shipping

products after testing showed Salmonella .

Finally, a federal judge has scheduled early 2016 for

a trial related to safety defects in General Motors

cars, including an ignition switch flaw linked to more

than 30 deaths and the recall of millions of vehicles .

The trial, which would involve a yet-to-be-chosen

wrongful death or personal injury case, would begin

January 11, 2016 . It is part of consolidated litigation

involving more than 100 lawsuits against the

automaker, some of which involve economic loss .


Regulatory Trends

Food Safety Modernization Act Update

In 2011, Congress passed the historic FDA Food

Safety Modernization Act . This law updated

the Food and Drug Administration’s food safety

authorities to better address emerging risks

and focus on preventing foodborne illness .

Since that time, the FDA has been tasked with

drafting new rules and procedures to improve

the effectiveness of our food safety system .

Initial rules were drafted addressing seven major

areas of food safety . The public, industry and

other interested parties were then given the

opportunity to comment on the draft rules .

In September of 2014, the U .S . Food and Drug

Administration published its revised provisions

to four of the Food Safety Modernization Act

rules . The rules for produce safety, preventive

controls for human food, preventive controls for

animal food and Foreign Supplier Verification

Programs (FSVP) have been modified to provide

more flexibility to producers and suppliers .

In a settlement over the litigation regarding

timing for implementation of the FDA Food

Safety Modernization Act, the original June

30th, 2015 deadline for the publication of the

seven major final rules was amended . These

rules must now be submitted to the Federal

Register for publication no later than:

August 30, 2015 March 31, 2016

Preventative controls for human food

Sanitary food transportation

Preventative controls for animal food

October 31, 2015 May 31, 2016

Produce Safely Intentional adulteration

Foreign Supplier Verification

Accredidation of third party auditors

The FDA has agreed to complete the rulemakings

by the recently imposed deadlines . However, if

the Administration believes good cause exists to

seek an extension, it may extend the deadlines

through a written agreement to the parties and

notification through the court . If the parties do

not agree to the extension, FDA can still seek

a change by following another procedure .

The Safe Food Act of 2015

As the new republican controlled Congress began

business in 2015, two Democratic Senators, Sen .

Dick Durbin (D-IL) and Rep . Rosa DeLauro (D-CT)

introduced bills on January 28th that would establish

a single, independent federal food safety agency .

The Safe Food Act of 2015 would establish the Food

Safety Administration with the goal to protect the

public health by preventing foodborne illness,

ensuring the safety of food, improving research

on contaminants leading to foodborne illness,

and improving security of food from intentional

contamination . It would also consolidate all the

authorities for food safety inspections, enforcement

and labeling into the Food Safety Administration

independent of any federal department .

The Act would provide the Food Safety

Administration with mandatory recall authority for

unsafe food, require risk assessments and preventive

control plans to reduce adulteration, authorize

enforcement actions to strengthen contaminant

performance standards, improve foreign food

import inspections, and require full food traceability

to better identify sources of outbreaks .

Technological Advancements in Food Safety and

Outbreak Tracking – Whole Genome Sequencing

The U .S . FDA, CDC, World Health Organization

(WHO) and other public health agencies are

increasingly utilizing cutting edge technologies

including whole genome sequencing (WSG) to

identify sources of foodborne illness outbreaks .

This data is being shared through large databases

accessible nationally and internationally to aid

in the investigation of outbreaks . Traditionally,

testing for pathogens has been performed

utilizing pulsed-field gel electrophoresis (PFGE)

technology . Although effective in isolating various

contaminants, it cannot differentiate between


the different strains . WGS technology is able to

provide more sensitive and reliable data that can

be paired with geographic information systems

to identify the root source of the contamination .

The FDA and CDC utilized WGS successfully

twice in 2014 to identify outbreaks . Listeria

Monocytogenes were first identified in a product

utilizing PFGE to link data archived in PulseNet .

Investigators then used WSG to definitively link

the strain to cheese produced by Roos Foods of

Kenton, Delaware . In essence, the WGS matched

the environmental and food samples with the

CDC’s human samples . Production was suspended

at the facility to minimize the outbreak .

The FDA also utilized the WGS technology to

identify a strain of Salmonella Braenderup linked

to almond and peanut butter manufactured by

nSpired Natural Foods in Ashland, WA, resulting in

the recall of numerous retail brands of the product .

The FDA and other agencies globally continue

to seek new and more powerful technologies

to detect and traceback pathogens . The FDA

in September announced the 2014 Food Safety

Challenge seeking potential breakthrough ideas

on how to find disease-causing organisms in food

– especially Salmonella in fresh produce . This

challenge offers a total prize pool of $500,000 .

USDA Ground Beef Safety Procedures Updated

The U .S . Department of Agriculture’s (USDA) Food

Safety and Inspection Service (FSIS) announced

new procedures that will allow the agency to trace

contaminated ground beef back to its source more

quickly, remove it from commerce, and find the root

cause of the incident to prevent it from recurring .

Under the new traceback procedures, FSIS will

conduct immediate investigations at businesses

whose ground beef tests positive for E . coli during

initial testing and at suppliers that provided source

materials . These traceback investigations will begin

as soon as FSIS receives a presumptive positive

result and the grinding facility can provide supplier

information . Previously, FSIS began investigations at

the grinding facility only after a presumptive positive

test result was confirmed, which could take two

days . A similar investigation of the grinding facility’s

suppliers would have taken place 30 days later .

By starting investigations at the point of a

presumptive positive test, the FSIS can save

valuable time . As part of the investigation, FSIS will

also review establishment records to determine

whether the grinding or supplying establishment’s

food safety system experienced a breakdown, and

determine whether the supplying establishment

shipped product that may be contaminated to

other grinding facilities or further processors .

FSIS estimates that dozens more recalls may

occur once these new protections are in place .

Over 18 million pounds of beef, pork, poultry

and related products in 94 separate recalls were

reported by the FSIS in 2014 . The primary cause for

these recalls was due to an undeclared allergen .

2014 USDA Meat Recalls by Contaminant

436

4

23

57

4

Undeclared allergen

Extraneous material

Processing defect

Undeclared substance

Other**

STEC*

Listeria monocytogenes

Salmonella

2


During the summer of 2014, we saw an example

of collaboration between the USDA and the CDC

when Wolverine Packing Company announced

the recall of 1 .8 million pounds of ground beef

patties and Angus burgers that may have been

contaminated with the E . coli 0157:H7 . Federal

government regulators said 11 people in four

states were sickened between April 22 and May 2 .

The recall came after the USDA’s Food Safety and

Inspection Service, along with the CDC, identified

patients sickened by E . coli O157:H7 . Identified

were five Michigan cases, four in Ohio, and one

each in Massachusetts and Missouri . The meat was

sold to wholesalers, retailers and for restaurant

use . Retail distribution included stores in Michigan,

Ohio, Virginia, Tennessee, Illinois, Minnesota,

Georgia, North Carolina, Florida, Indiana, Kentucky,

Pennsylvania, North Dakota and Wisconsin .


Social Media Monitoring

By now, most companies recognize the power of

social media . That power can be a useful tool in

promoting a company’s brands, but can also be a

double edged sword when things go wrong . Bad

news can travel faster than ever before . Social

media sites are increasingly becoming the way

we read and comment on the day’s events . It

can also be an outlet for disgruntled employees,

customers and special interest groups looking to

cause harm or damage to a brand . Facebook alone

has over 1 .3 billion unique visitors each month, and

YouTube reaches more adults age 18-34 than any

cable network and is available in 61 languages .

The ability to quickly spot and respond to trends

involving your products is crucial in today’s

world . Increasingly, companies today are taking

a proactive approach to social media to both

mitigate risk and build trust with consumers . An

assortment of social listening and monitoring

software is now available to assist companies with

their social media strategy . Monitoring for certain

key words and brands can alert a company to

both negative and positive trends involving their

brand . Integrating a company’s public relations,

consumer affairs and food safety and quality teams

can be an effective way to help mitigate these risks

to both regain and build trust with consumers .

Social media not only spreads the news of a

dangerous product faster than ever before; it may

also be used as a means for revenge, financial

gain or other illegal activity . Building a proactive

social media plan should be an essential part of

any company’s overall food defense strategy .

Top Social Media Websites:

Facebook 1 .3 Billion monthly visitors

YouTube 900 Million monthly visitors

Instagram 300 Million monthly visitors

Twitter 288 Million monthly visitors

Economically Motivated Adulteration of Food and Food Ingredients

Over 15 percent of the food Americans eat is

imported from other countries and in fact, 80

percent of all seafood is sourced from outside the

U .S . As supply chains become increasingly more

complex and longer in length, the exposure to

economically motivated adulteration rises . The

National Center for Food Protection and Defense

defines Economically Motivated Adulteration

(EMA) as the intentional adulteration of food for

economic gain . EMA incidents have resulted in

serious unintended public health consequences,

and they illustrate gaps in our regulatory and

quality assurance systems that could be exploited

for intentional harm . The aim is generally not to

harm people, but to profit by fraudulent means .

The Grocery Manufacturers Association (GMA)

estimates that fraud may cost the global food

industry between $10 billion and $15 billion

per year, affecting approximately 10 percent

of all commercially sold food products .

Many foods are known to be susceptible to EMA .

These food products include fish and seafood,

dairy products, fruit juices, oils, honey, spices,

wine, and infant formula . Recent examples include

the dilution of orange juice, the substitution of

cheaper oils for more expensive ones, and the

use of nitrogen-containing chemical additives to

increase the apparent protein content of foods .

Mislabeling is also a common form of EMA where

fraudulent ingredients may be promoted . EMA

is not a new concern, although it may seem like

there has been a recent increase in incidents

over the past few years . This is partly due to

increased media coverage as well as increased

surveillance in certain food products . The number

of documented incidents is most likely a fraction

of the true number of incidents, since the goal

of EMA perpetrators is to avoid detection .

Two of the most noteworthy incidents of EMA

occurred in 2007 and 2008 . In 2007, melamine-

Industry Trends


contaminated pet food imported from China

caused the death of countless dogs and cats in

the U .S . In 2008, melamine-contaminated milk

powder sickened more than 290,000 Chinese

children . The melamine had been added to the

product in order raise the perceived protein levels

of the milk powder . Fraud was also a motive

behind Peanut Corporation of America’s actions

in 2009 with the Salmonella outbreak in 2009,

which killed nine people and sickened 700 .

Leading Food Fraud Categories:

• Milk products• Seafood• Olive oil• Natural sweeteners• Coffee and tea• Organic foods• Fruit juices• Spices• Clouding agents

Terrorism and Cyber Attacks on Food Systems

On December 19, 2014, the U .S . Senate failed to

reauthorize the Terrorism Risk Insurance Act and

with it, created an environment of uncertainty and

volatility within the insurance industry . Thankfully,

on January the 8th, the new 114th Congress

acted quickly with the reauthorization passing

both the Senate and House of Representatives .

In light of this, it is important to understand the

coverage provided for terrorism under most

product contamination and recall policies .

Most product contamination insurance policies

do include a standard terrorism exclusion .

These exclusions first became an issue shortly

after 9/11 and caused concern amongst brokers

and policyholders specific to the malicious or

deliberate aspect of coverage . In order to minimize

this concern, most policies contain “carve out”

provisions where the exclusion does not apply

if the insured or insured products is the direct

target of the act or alleged act of terrorism . It is

important to note that the terrorism exclusion

should not have an effect on the “Accidental

Contamination” portion of your policy . In light

of this “carve out” provision, many policyholders

do not purchase TRIA under these policies .

Many of the recent cyber-attacks on business

have been related to outside vendors accessing

the internal systems of customers . This is also a

concern as relates to manufacturing operation .

Outside vendors may have limited access to

processes that control the manufacturing process

including temperature settings, ingredient

amounts and packaging or labeling control . Slight

variations to any of these processes through

information or data systems manipulation from

an outside vendor or internally, may require

the recall of potentially unsafe products .

Supply Chain Integrity

The effective management of a company’s supply

chain, particularly as it relates to the sourcing of

ingredients or component parts is a significant

factor in evaluating risk . In 2013 and 2014, two

major fast food chains were stung with food safety

allegations . In both cases, Chinese suppliers were

at the heart of allegations that caused losses to each

company in the hundreds of millions of dollars .

Sourcing of ingredients is the obvious concern,

but it is also important to note recalls caused by

component parts and packaging . Mislabeling

of packaging, glass breakage and packaging

design issues have caused significant to

manufacturers over the past several years

and will also need to be considered .

Constellation

Brands

Glass particles in bottles of

Corona (Supplier Issue)

McDonalds Food safety concerns of

Chinese supplier (Sanitation/

relabeling of expired product)

Yum Brands Food safety concerns of

Chinese supplier (Antibiotic

use in poultry by suppliers)


Experts estimate that losses to manufacturers and

retailers due to the counterfeiting of branded

products is approaching $1 trillion annually .

Although manufacturers may perceive the

probability of a counterfeiting event to be low,

the damage and risk to consumer safety and a

company’s brand can be significant . This may

be particularly true if counterfeit ingredients or

components are introduced through the supply

chain process . Recent incidents involving pet food

and infant formula utilizing tainted ingredients

are just two recent examples of the damage .

Depending on how the introduction of tainted

or counterfeit products entered the supply chain,

coverage may be available through traditional

product recall or contamination insurance programs .

Other incidents of counterfeiting, however, may

need to be addressed through supply chain

management . Newer brand reputation insurance

programs are attempting to address the exposures

of counterfeiting, however, until companies

begin quantifying or measuring the financial

impact of counterfeit products, underwriters

will have difficulty assessing the risk properly .


Brand / Reputation programs

Damage to a company’s brand or reputation

continues to rank at or near the top of most

company’s greatest concern . Over the past several

years, we have seen various “brand” or “reputation”

insurance programs being offered, and the insurance

industry continues to develop in this area . Original

attempts to provide coverage focused on offering

public relations and crisis management services to

stave off the effects of a brand damaging incident .

Although offering a wide range of incidents that

could potentially trigger the policy, these programs

did not offer financial protection for income losses .

Newer offerings, however, can now include

financial protection while still offering a wide

array of triggering events such as:

• Recall or contamination

• Industrial espionage

• Workplace violence

• Counterfeiting

• Breach of IT security

• Foodborne illness

• Major litigation

• Loss of key executive

• Other brand damaging events

The programs being offered are customized

to a client’s specific concerns . Programs

typically are characterized by large retentions

and include a financial loss or reputation value

loss threshold that must be met in order for

the policy to respond . Significant capacity in

excess of $100 million, dependent upon the

risk, may be available . While few of these

programs currently exist in the marketplace,

we anticipate carriers continuing to invest in

these potential solutions to reputational risk .

Claims Preparation Coverage

Carriers are increasingly willing to include claims

preparation expense coverage via endorsement

under recall and contamination insurance programs .

This recognizes the additional expense incurred

by insureds in preparing the required claims

documentation and forensic accounting work that

may be required to properly document the claim .

This is an expense that were it not for the recall or

contamination incident, would not be incurred and

therefore should rightfully be covered under the

policy . The concept of claims preparation expense

is fairly common under property policies and is

now being increasingly accepted by most recall

carriers as well . It is also important to work with

your broker in identifying firms with the expertise to

assist with the claims preparation and advocacy task

International program placements

Increasingly, clients are requesting international

placements for product recall and contamination

insurance programs with local policies, premium

remittance and claims payment . However, only

a relative few carriers have the capabilities to

provide this service . Although most carriers

have global office locations, few have filed forms

in each country for this risk . Depending on

the country involved, the filing process may be

time consuming and cumbersome given local

regulations and reinsurance . Typically, carriers

have filed forms in most European countries,

Canada, Australia/New Zealand and to a lesser

extent, certain Latin American countries .

Several of the larger international carriers are seeing

this as an opportunity to provide a local service

others cannot . More specifically, carriers at Lloyds,

and company markets ACE, AIG, Allianz, Liberty

International and XL are each at various stages of

their development of true international program

placements for product recall and contamination .

This is a trend we anticipate continuing and

may be supplemented by inclusions of tax

equalization endorsements attached to policies .

Product Trends


2014 Loss Activity

2014 continued the trend of significant loss

activity for underwriters of product contamination

and product recall insurance . Food and

beverage products appear to have affected

the markets more so than non-food products,

although major automotive recalls have also

dominated the news . Underwriters have

been expressing a need to increase rates and/

or retentions for new business and accounts

and industries with adverse loss histories .

Several events dominated the recall activity and

concerns for underwriters . The recalls listed below

are a summary of some of the more significant recall

events that have taken place over the past 30 years .

Historically Significant Recall Events 1982-2014

Product Company Year Country Recall

Tylenol McNeil Labs 1982 U.S. Product Extortion Incident involving over

30,000,000 bottles of pain reliever due to

suspected cyanide tampering . Estimated costs

in excess of $100,000,000 with majority of loss

due to lost sales and product replacement .

Perrier Water Perrier Water 1990 U.S./France Benzene contamination resulting in recall of

160,000,000 bottles . Brand never re-established

to pre-recall sales level . Estimated at $40,000,000

in lost sales plus value of destroyed product .

Pepsi PepsiCo 1993 U.S. Alleged tampering of Diet Pepsi products with

needles . Loss in excess of $35,000,000 due to

lost sales, rehabilitation and advertising costs .

Jack-in-the-Box Foodmaker 1993 U.S. E . coli contamination of ground beef on West Coast .

Numerous bodily injury claims and 4 adolescent

deaths . Loss in excess of $100,000,000 primarily

due to lost sales and rehabilitating the brand .

Cheerios General Mills 1994 U.S. Contamination of grain by grower using improper

pesticide . Loss in excess of $75,000,000 .

Ground Beef Hudson Foods 1997 U.S. E . coli contamination of ground beef patties . Recall

of more than 20,000,000 lbs . of ground beef . The

most crippling effect was not direct recall costs, but

the loss of Hudson’s best customer, fast-food giant

Burger King . Company no longer in business .

Hot Dogs Sara Lee 1998 U.S. 35 million pounds of meat product recall

for listeria . The recall itself cost about $76

million . In addition, an additional $25

million was spent to renovate the facility .

Coca-Cola Coca-Cola

Company

1999 Belgium/

Europe

Loss in excess of $100,000,000 as recall of products

expands from Belgium to 6 European countries .

Snickers and

Mars Bars

Snickers and

Mars Bars

2005 Australia Product extortion in Australia alleging

poison contamination forces recall and

destruction of over 3,000,000 candy bars .

Loss estimated in excess of $10,000,000 .

Cadbury Chocolate Cadbury

Schweppes

2006 United

Kingdom

Salmonella contamination resulted in

recall of over 1,000,000 chocolate bars .

Estimated loss in excess of $50,000,000 .

Carrier Trends


Spinach Natural Selection

Foods

2006 U.S. Recall costs and estimated sales losses

amounted to $350 million

Pet Food Menu Foods 2007 Canada/U.S. Melamine contamination of wheat gluten used

in various pet foods due to Chinese supplier

resulted in recall of 60 million containers of

pet food . $42,000,000 in losses attributed to

the recall alone, not including lost sales .

Peter Pan

Peanut Butter

ConAgra Foods 2007 U.S. Losses estimated at $78,000,000 in recall

costs plus $55,000,000 in lost sales . Facility

refurbishment estimated at $15,000,000

Pot Pies ConAgra Foods 2007 U.S. The company voluntarily recalled all of its

Banquet and private label pot pies out of

concern for salmonella . Direct recall costs were

approximately $27 million in the second quarter

Tomatoes / Peppers Various 2008 U.S. Salmonella outbreak incorrectly linked to

tomatoes by the FDA costs the tomatoes

industry more than $100 million in related losses

with one estimate as high as $350,000,000 .

Eventually, the contamination is traced to

jalapeno and serrano pepper farm in Mexico .

Deli Meat Products Maple Leaf Foods 2008 Canada Listeria contamination found in corned beef

and roast beef products . Recall expanded

to 243 different meat products produced

by Maple Leaf Foods . The packaged meats

recall significantly affected the business by an

estimated $59 million to $69 million before taxes,

including $19 million in one-time direct costs .

Peanuts Peanut Corp.

of America

2008 U.S. Salmonella contaminated peanuts affecting

more than 200 companies and 2000 different

products . Industry losses estimated at over

$1B . PCA declares bankruptcy . Kellogg had

reported losing $70 million due to the recall .

Cookie Dough Nestle 2009 U.S. National outbreak of illness from E . coli 0157

been linked to the product . Company estimated

recall would cost between $30-$50 million .

Hydrolyzed

Vegetable Protein

Basic Food Flavors 2010 U.S./Canada Salmonella contamination results in recall of 177

different products . Affected bulk, ready-to-eat and

ready-to-cook products in the U .S . and Canada .

OTC Children’s

Medicine

Johnson &

Johnson

2010 U.S./Canada Recall of 43 over-the-counter children’s medicines

(135 million bottles) by McNeil Consumer

Healthcare, a subsidiary of Johnson & Johnson . The

recall affected at least 12 countries . Third Qtr . 2012

earnings report listed $665 million in recall costs .


Eggs Wright County

Egg Farm

2010 U.S. Recall of over 500 Million shell eggs due to

salmonella contamination . GMA estimated loss

at $100 Million to the shell egg industry .

Infant Formula Abbott Labs 2010 U.S. 5 million containers of top-selling Similac

powdered infant formula recalled due to

possible contamination by beetles or larvae of

the bugs . The company advised that returns

of the purchased formula may reduce third-

quarter revenue by an estimated $100 million .

Cantaloupe Jensen Farms 2011 U.S. Deadliest foodborne illness outbreak in over

25 years . Listeria contamination results in over

30 deaths and hundreds of illnesses . Dollar

volume of sales drops by 55 .7% within four

weeks . Company declares bankruptcy .

Ground Turkey Cargill Meat

Solutions Corp.

2011 U.S. Largest meat recall in history with 36 million

pounds of ground turkey (representing 6% of

annual consumption for the industry) recalled

because of potential salmonella contamination .

The recall and subsequent plant closure led to

130 employees being laid off and one of the

“weakest quarters” ever for their meat division .

Cucumbers/Sprouts European Farmers 2011 Europe Cucumbers initially implicated in over 4,000 illness

and at least 48 deaths . German Federal Ministry

of Food, Agriculture and Consumer Protection,

later announced that seeds of fenugreek imported

from Egypt were likely the source of the outbreak .

EU farmers claimed losses of $611 million .

Peanut Butter Sunland, Inc. 2012 U.S. Over 200 different products recalled . Resulted

in first ever facility shutdown by FDA under FSMA

authority . Company declares bankruptcy in 2013

with between $50-$100 million in liabilities .

Chicken Products YUM! Brands 2012 China Accusations of poultry being fed toxic

chemicals leads to significant brand damage

and China first-quarter loss of 41% . Same

store sales down 20% in first qtr 2013 .

Whey Protein Fonterra 2013 New Zealand False report of botulism-causing bacteria . Fonterra

booked loss of NZ$14 million provision for costs

associated with the replacement of recalled

products . Customer Danone sued Fonterra in

NZ High Court after an estimated loss of $407

million in free cash flow due to whey protein

used as an ingredient in their product .


Frozen Foods Rich Products

Corp.

2013 U.S. E . coli contamination results in recall of over

10 million pounds of potentially contaminated

products . Loss estimated at in excess of $10 million

for recall expense, value of products and lost profit .

Yogurt Chobani 2013 U.S. Leading Greek Yogurt manufacturer issues recall

due to mold associated with dairy products .

The resulting negative publicity, destroyed

product and refunds caused significant financial

damage . Actual loss costs unknown .

Meat OSI 2014 China Allegations of unsafe food practices at the

company’s Chinese subsidiary affected a major

fast food chain resulting in lost sales measured

in the hundreds of millions of dollars .

Chicken Products Foster Farms 2014 U.S. Class 1 recall of over 170 different chicken

products to the potential presence of Salmonella

Heidelberg, a rare strain of Salmonella that is

particularly resistant to antibiotic treatment . Foster

Farms invests $75 million in food safety efforts .

Automobiles General Motors 2014 U.S. General Motors announced more than 60 recalls

involving 29 million vehicles . Second-quarter profits

were down 80% from the prior year and included

the impact of $1 .2 billion in recall-related repairs .

Fruit Wawona 2014 U.S. Nationwide recall of stone fruits and baked

goods containing potentially tainted fruit .

Beer Constellation

Brands

2014 U.S. Recall of Corona Extra Beer due to glass

contamination leads to more than $10

million in recall-related costs .


Consolidating and New Capacity

Capacity in the recall market continues to grow

with more innovation and solutions being

developed by various carriers on an ongoing basis .

On January 9th, XL Group plc and Catlin Group

Limited announced their agreement to combine

into a single company creating a leading presence

in the global property & casualty insurance and

reinsurance markets . Under the terms of the

transaction, XL will acquire all outstanding shares

of Catlin for approximately $4 .1 billion . The newly

combined company will be marketed as XL Catlin .

Both XL and Catlin are significant providers of

capacity to the product recall and contamination

insurance market . In many ways, their facilities

complement one another in terms of geographic

scope with XL more diversified in its distribution

network including Bermuda and the U .S .

and Catlin operating primarily out of Lloyd’s .

Further, while underwriting appetite under both

companies has focused on food and beverage

risks, Catlin has carved itself a significant niche in

the automotive and non-food recall market . Until

the transaction closes, both XL and Catlin will

continue to operate as two separate companies .

Initially, we would not anticipate any significant

change in appetite or capacity, but the combining

of these two firms bears watching . Once the

transaction is completed, which is estimated

for mid-2015, there may be a tightening of

capacity . However, alternate carriers appear to

be prepared to replace any exiting capacity and

in fact, we may see new syndicates or carriers

enter the market to fill this void/opportunity .

Aon Crisis Management will continue to monitor

the situation and provide periodic updates .

In November of 2014, Allianz Global Corporate

& Specialty expanded its offerings within the

U .S . market with the formation of Allianz Crisis

Management . Their focus for product recall will

be on both the food and non-food categories

with a net capacity of €50,000,000 . It is their

stated intention to heavily engineer risks during

the underwriting process . Allianz has not yet

released their policy wording, but is structuring

the group with a focus on International Program

Placements (IPP’s) . In addition to quoting primary

risks, they will also consider follow form excess . As

yet, they have not named a crisis consulting firm .

Lower Capacity Per Risk Being Offered

We have seen a number of underwriters reducing

their primary capacity on both product recall and

contamination programs . Carriers are looking to

share their risk with other carriers is a trend we

are likely to see continuing . Those underwriters

limiting their risk on primary layers are generally

able to come back in with their additional

capacity at higher layers . Excess capacity is

readily available and competitively priced . As a

result we do not anticipate a significant change

in pricing on an overall program, although

we will likely see an increase in multi-carrier

programs and number of excess layers .

Adverse Publicity Concerns

Underwriters continue to have concerns relating

to adverse publicity coverage triggers . The

intent of the adverse publicity trigger is to

provide coverage in instances were an accidental

contamination has been alleged, although none

has actually occurred . In light of social media, this

is a significant concern, as regardless of whether

or not the allegation is valid, damage to the brand

and profits can occur . The recent examples of

food safety allegations in China are an example

of where actual contamination may be difficult

to prove, yet significant damage resulted .

The majority of domestic carriers continue to offer

adverse publicity coverage, generally to the full

policy limit . The London market has been more

reluctant to offer this coverage as standard and

generally will only offer adverse publicity as a

sublimit . This is more of an issue for companies

with highly recognizable brands and trade names .


U.S. Domestic Carrier Review

Domestically, U .S . carriers appear to be in a stable

position . Although each carrier has to some extent

experienced a difficult 2014, the losses seem to have

been spread between markets . Risk preference

and class selection among carriers continued

to develop in 2014 with carriers focusing their

portfolios towards strategic industries . Domestic

markets continue to provide good competitive

alternatives to the traditional London and Bermuda

markets . The domestic markets have driven

much of the innovation in this class including

impaired property, government recall, adverse

publicity, product refusal and recall liability .

ACE Westchester, a U .S . based insurance division

of ACE Group, and a new player to this field in

2012, had a successful 2014 having established

themselves as a significant carrier for non-

food and automotive product risks . The ACE

Westchester product recall offering can tailor

coverage based on the unique needs of customers .

ACE maintains a capacity of $10 million and will

consider food, beverage, consumer products and

automotive component parts, but seems to have

carved its niche in the non-food categories .

ACE Westchester also introduced ACE Recall

Plus for Small Business an affordable suite of

product recall coverages for companies with

sales of up to $25 million . The facility is focusing

on first time buyers who need the coverage but

find current market offerings cost prohibitive .

The program targets three distinct groups—

manufacturing component parts, consumer

goods and consumable products . Minimum

premiums start as low as $1,000 with limits ranging

from $50,000 to $1 million . Policyholders will

have access to product recall consultants on a

pre– and post–incident basis, allowing the small

business owner to have a business partner who

knows the pitfalls and implications of recalls .

AIG through Lexington Insurance Company

continues as the longest standing product recall

market globally, having offered some form of

this coverage for over 25 years . Based in New

York City, the underwriting team maintains a

strong underwriting discipline for this class .

AIG has significantly broadened its scope to

include large multinational accounts and has a

capacity of $25 million . At the outset of 2015,

Lexington announced Celebrity RecallResponse,

providing recall and related advertising expense

coverage should a celebrity spokesperson

become entangled in an illegal activity, public

scandal or disgrace – or dies unexpectedly .

Houston Casualty Company (HCC) continues to be

a favored market for smaller food and beverage risks .

As of January 1, 2015, HCC will be utilizing a new

policy form for product contamination insurance .

The policy incorporates many coverages that were

previously included by endorsement, resulting in

fewer endorsements . The new form also contains

a number of enhancements over the existing

policy form . Most notably, Government Recall is

now included as an Insured Event and represents

an enhancement over the existing endorsement .

Further, the indemnity period for Lost Gross Profits

has been extended from 15 months to 18 months .

On the primary side, HCC can provide up to $5

Million in capacity for food and beverage companies

with $500 Million in annual revenues and under .

For excess, HCC can provide limits up to $5 Million

excess of any underlying insurance and limits of $10

Million excess of $10 Million in underlying limits for

companies of any size, large or small . Also beginning

in 2015, HCC will be able to provide excess

insurance for companies in the non-food business .

Liberty International Underwriters (LIU) continues

to aggressively expand its portfolio through all

product types with the exception of automotive

component parts . With a capacity of $15 million

and a package that includes third-party recall

liability and impaired property coverage for both

food and non-food products, LIU is a significant

and innovative player in this specialized market . In

Market Update


2014, Liberty has taken a less aggressive approach

to consumable products, limiting the amount

of capacity they will offer on a primary basis .

Starr Indemnity & Liability Company (C .V . Starr)

continues its steady growth across all product

types with the exception of automotive component

parts . Starr has carved its niche through

innovative coverage extensions and competitive

pricing structures . During 2014, we have seen

Starr significantly increase its appetite for larger

risks and commit increasingly larger primary

lines . Of the domestic carriers, they appear

to have weathered losses better than most .

Crum & Forster continued to reposition

their portfolio in 2014 while still focusing on

both food and non-food products, including

automotive products . We have experienced

Crum focusing on limiting their capacity on

primary programs while focusing on greater limits

for excess opportunities with higher rates .

SwissRe has offered this coverage for a number

of years and has recently taken a more aggressive

approach in promoting this class of business .

SwissRe offers coverage for food, non-food

and automotive products with significant

capacity of up to $25 million depending on

the type of products and attachment .

London and the Lloyd’s Carrier Review

The London market and Lloyd’s continues as

a significant and thriving market for this class

of business . The Lloyd’s market is home to 57

managing agents and 93 Lloyd’s syndicates, which

offer an unrivalled concentration of specialist

underwriting expertise and talent and includes

many specialist underwriters writing product

contamination and product recall business .

There are 23 markets that can be accessed

in London for this class of business, which is

broken down by eight global insurers and 15

Lloyd’s Syndicates . All of these markets have

varying risk appetites and capacity . Some

of these carriers concentrate on food/drink

product contamination and some concentrate

on the non-food side such as automotive and

other component part manufacturers .

The London market has suffered from a particularly

active claims period over the past several years

resulting in some restrictions in underwriting

appetite and a reluctance to offer full limits on

certain coverages including adverse publicity

on the food and drink side . Nevertheless,

Lloyd’s remains an innovative, active market,

particularly in the automotive component parts

and non-automotive component parts sectors .

Leading the way at Lloyd’s is Catlin Syndicate

2003 who write all five classes of product recall

and contamination, including Food and Beverage;

Consumer Goods; Restaurant Contamination;

Automotive and Pharmaceutical . Catlin has

their own tailored wordings for all of these

classes of business and has the largest dedicated

product recall team in the London market . They

also boast that none of their wordings have

any condition precedents or warranties .

Early in 2014, Catlin released a new restaurant

wording that improves upon the language found in

their prior policies . One example involves supplier

coverage that is now incorporated as a separate

insured event . In addition, a Public Health Authority

Announcement has been integrated into the new

form which should give a greater extension to the

adverse publicity trigger . Overall, Catlin’s new

wording clearly and concisely lays out terms for

restaurants seeking to explore broader and more

specific coverage in the contamination marketplace .

The next largest Lloyd’s players in this business

are XL, Talbot and Liberty that have significant

underwriting teams and capacity to offer on

London placed programs . Other notable Lloyd’s

Syndicates to mention are Canopius, Ark, Kiln and

Novae who have underwriters with many years’

experience in this class and can provide valuable

capacity on either a primary or excess basis .


XL Syndicate 1209 tend to specialize in the Food

and Drink side but have over the past 18 months

expressed a desire to expand into the automotive

recall sector . In February, 2015, they have released

an XL branded Automotive Recall wording .

The Talbot Syndicate 1183 at Lloyd’s began

providing product recall insurance with a capacity

of $25 million in the summer of 2012 which was

increased to $30 million the following year . Talbot

is focused on addressing three distinct market

segments: Product Contamination Insurance

for the food and beverage industry including

pharmaceuticals and restaurants; Product

Recall Liability Insurance for component part

manufacturers; and First Party Recall Insurance

for consumer finished goods companies .

Liberty International continues to be an active

London market willing to provide both primary

and excess capacity . Traditionally based at

Liberty Mutual Insurance Europe Ltd ., they have

now fully integrated their capacity under Liberty

International Underwriters (LIU) Box 336 at

Lloyd’s . Liberty’s London product recall team

will transition their product recall portfolio to the

Liberty Lloyd’s Syndicate 4472, allowing the team

greater flexibility to write business in geographic

areas where they are currently restricted .

The recently rebranded Tokio Marine Kiln

Syndicate 510 is well known for being one of the

more innovative syndicates in the market . Unique

offerings from the syndicate include a supplier

indemnity endorsement, which provides cover

for off specification or faulty materials, as well as

withdrawal of regulatory approval or license at a

named suppliers production facility . Underwriters

will also offer reputational harm coverage which

can be bought standalone or in conjunction with

their product contamination policy . We saw new

capacity entering the London market through

the Ascot Syndicate and the Hardy Syndicate

with other syndicates expanding their capacity .

New in 2014, the Apollo Syndicate developed

a product recall consortium specific to the

automotive and general engineered component

parts sectors and recently increased their capacity

from GBP 5 million to GBP 10 million for 2015 .

Bermuda Carrier Review

In light of increasing capacity and appetite globally

for the recall class of business, the Bermuda

market has been less active than in earlier years .

Characterized by high attachment points and

significant capacity, the market is dominated

by XL Insurance, with several of the island’s

carriers including Markel, Aspen, ArgoRe and

AWAC able to provide supporting capacity .

Over the past decade, the Bermuda markets

have been consistent in their approach to these

risks as well as in their pricing philosophy .

Bermuda is an option primarily for larger multi-

billion dollar companies or those willing to

carry a substantial retention . Total capacity

available on the island can exceed $100

million depending on the class of business .


Food & Beverage Non-Food

Carrier Domicile Accidental Malicious Consumer Automotive

Ace Westchester U.S. $10M $10M $10M $10M

Ace European Group Europe/London $10M $10M $10M $10M

AIG (Lexington) U.S./Bermuda $25M $50M $10M N/A

AIG (London) London $10M $50M $10M N/A

Allianz Europe €50M €50M €50M €50M

Allied World Bermuda $10M $10M $10M $10M

Allied World London $10M* $10M* N/A $10M*

Amlin Syndicate 2001 Lloyds N/A N/A $1M* N/A

Apollo Consortium 9398 Lloyds N/A N/A $10M $10M

Arch Syndicate 2102 Lloyds N/A N/A N/A $15M

ArgoRe Bermuda $25M $25M $25M $25M

ARK Syndicate 4020 Lloyds $15M $15M $15M $15M

Ascot Syndicate 1414 Lloyds N/A N/A $25M $25M

Aspen Bermuda $10M $10M N/A N/A

Berkshire Hathaway

International

Insurance Limited

London Unlimited Unlimited Unlimited Unlimited

Canopius Syndicate 4444/958 Lloyds $10M $10M $10M $10M

Catlin Syndicate 2003 Lloyds $35M $50M $35M $25M

Crum & Forster U.S. $10M $10M $10M $10M

C. V. Starr Syndicate 1919 Lloyds $15M $25M $15M N/A

C. V. Starr U.S. $15M $25M $15M N/A

Griffin Underwriting Guernsey $10M $10M N/A N/A

Hardy Syndicate 382 Lloyds N/A N/A $25M $25M

HDI Gerling Industrial

Insurance CompanyLondon €15M* €15M* €15M* case by case

Houston Casualty U.S. $5M $5M N/A N/A

Houston Casualty Excess U.S. $10M $10M N/A N/A

Liberty International U.S. $15M $25M $15M N/A

Liberty Syndicate at Lloyds London $15M $25M $15M N/A

Markel Bermuda $25M $25M $10M $10M

Novae Syndicate 2007 Lloyds $10M $10M $10M N/A

PLIS Lloyds $5M $5M N/A N/A

2015 Global Recall and Contamination Market Capacity


QBE Syndicate 0386/1886

and QBE Insurance

(Europe) Limited

Lloyds/London N/A N/A N/A €15M

SwissRe U.S. $25M $25M $25M $25M

SwissRe International Europe/London $25M* $25M* $25M* $25M*

Talbot Syndicate 1183 Lloyds $30M $30M $15M $15M

Tokio Marine Kiln

Syndicate 0510

Lloyds $20M $20M $20M case by case

XL Insurance Syndicate 1209 Lloyds $25M $25M $25M $25M

XL Insurance U.S. $10M $10M N/A N/A

XL Insurance Bermuda $50M $50M $25M $25M

Zurich Insurance plc London $25M* $25M* $25M* N/A

*Denotes capacity only available for non-U.S.

Food & Beverage Non-Food

Carrier Domicile Accidental Malicious Consumer Automotive


Product Recall and Contamination Benchmarking, Analytics and Modeling

Data is critical to making intelligent business

decisions . How effectively businesses develop,

manage, and utilize data impacts the quality of

those decisions . Recall and contamination events

continue to receive a high profile in the media

and press . Although large amounts of data are

available through publicly announced recalls,

actual damage or loss information is seldom

publicized or available . The size or severity of

a loss may well be more dependent upon the

handling of the media and public perception

as opposed to the size of the recall itself .

Projecting the exposure to a product recall or

contamination can be a difficult task not only for

the company at risk, but for underwriters as well .

Aon Crisis Management has developed a

benchmarking process that enables clients to better

understand their potential exposure to product

recall and contamination . Utilizing a proprietary

database of current Aon Crisis Management

placements, our benchmarking analysis is able

to provide detailed peer group studies on limits,

retentions and rates on a global basis . This tool

allows us to view data by revenue size, industry

or product category, providing a valuable tool

in helping to determine appropriate limits and

retentions . The data is presented in a summary

format; however, client-specific reviews based

on exposures and products are available .

Minimum0

$5B Plus

$1B - $5B

$250M - $1B

Less than $250M

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

AverageFirst Quartile

Mode Median Third Quartile

Maximum

$20,000,000

$1,000,000

$2,000,000

$500,000

$20,000,000

$10,000,000

$5,625,000

$2,000,000

$77,142,857

$23,366,667

$12,941,176

$5,816,667

$20,000,000

$25,000,000

$10,000,000

$5,000,000

$75,000,000

$20,000,000

$10,000,000

$5,000,000

$87,500,000

$25,000,000

$18,750,000

$8,125,000

$230,000,000

$75,000,000

$30,000,000

$40,000,000

Limits

Product Recall and Contamination Benchmarking, Analytics and Modeling


In addition to traditional recall benchmarking data, Aon’s Actuarial and Analytics practice in conjunction

with Aon Crisis Management has developed a Product Recall Analytics and Modeling Suite that provides

guidance on the financial impact of decisions made about Product Recall risk and insurance . This additional

service provides specific advice to consider when evaluating program limits and attachment points .

The model helps determine the impact of program structure on retained losses, insurance recoveries, losses

in excess of insurance coverage and premium value . This analytic capability can enhance the decision making

process for multiple objectives .

Minimum0

$5B Plus

$1B - $5B

$250M - $1B

Less than $250M

$4,000,000

$2,000,000

$8,000,000

$6,000,000

$12,000,000

$10,000,000

$14,000,000

$16,000,000

Retentions

AverageFirst Quartile

Mode Median Third Quartile

Maximum

$1,000,000

$25,000

$50,000

$25,000

$3,750,000

$750,000

$250,000

$50,000

$4,785,714

$2,745,000

$644,853

$377,500

$5,000,000

$1,000,000

$250,000

$50,000

$5,000,000

$1,000,000

$250,000

$100,000

$5,000,000

$3,000,000

$500,000

$312,500

$10,000,000

$15,000,000

$5,000,000

$5,000,000

RecallEvent

GrossLoss

SupplierRecoveries

RiskTransfer

Total Costof Risk

(Premium and Retained Loss)Duration

Regions/ProductsImpacted

Cost to Recall and Cost of Goods

Lost Sales


When a recall or contamination crisis occurs, events

move quickly . How you respond to these challenges

may well dictate how quickly and successfully you

recover . Identifying the proper resources can

be difficult, particularly for a risk that may have

happened only rarely in your company’s history .

Recovering from a recall efficiently will probably

require a company’s risk management team’s

involvement from start to finish . Our experience has

shown that the longer a company waits to quantify

and document costs and make claims to suppliers

and insurers, the more difficult it is to recover

those costs . The preservation and collection of key

data will begin upon notice of a potential claim .

Claims Preparation, Management and Advocacy

Retain contaminatedproduct samples

Product testing resultsand costs

Destructioncertificates

Invoices and purchaseorders related to the

recall (trucking, storing, destroying)

Documentation related to reimbursement of

customers for returningproduct

Historical budgetsand forecasts

Costs incurredfor discounting and couponing

Internal overtimecosts and expenses

Any other extraordinarycosts or expenses

incurred

Other insurance orindemnification contracts

with suppliers

Inventory listingsand valuation Production costs data

Public relations and customer

communications costs

Invoices for vendorservices (crisis

management, reverse logistics, public relations,

others)

Employeeovertime

Historical profit and loss

Claim Data Collection Requirements


The Aon Recall Crisis Center helps you navigate

the various requirements and responsibilities

of your insurance policy . Paid for under your

policy, various services and specialty consultants

may be available to you . Accessing the proper

consultant in a timely fashion will not only aid

in the successful resolution of your claim, but

can also help insure invaluable assistance .

The Aon Recall Crisis Center maintains a

continuously updated and confidential database

of our clients and the services available from

each carrier . This comprehensive management

system brings all aspects of your policy

together in a structured way by providing a

straightforward solution that can coordinate

the responses and third-party relationships tied

to your insurance policy . This service provides

an effective, automated process and delivers

a high level of management control with

minimal administrative burden on your part .

Aon RecallCrisis Center

Carrier's Crisis Management Team

Aon ClaimsManagementand Advocacy

Aon ClaimsPreparation

and Valuation

Aon CrisisManagement, Senior

Management andAccount Executive


The product recall and contamination insurance

market continues to mature and grow, and despite

the increasing frequency of recalls globally,

new carriers and capacity continue to enter the

market . As a result of certain carriers having taken

significant losses over the past several years, we

anticipate that there may be some tightening of the

market in terms of pricing and capacity . However,

those risks that are well prepared to manage a

recall event and that are able to demonstrate

their preparedness through quality assurance and

planning will be sought after by underwriters .

Carriers will continue to strive to identify and

insure the “better risks .” Many underwriters

will look to diversify their portfolios to spread

their exposures beyond food and beverage

risk . We anticipate that underwriters will look

more favorably at non-food risks including

automotive products because loss trends have

shown this to be a profitable subcategory .

It’s anticipated that underwriters will also look more

favorably upon companies who have demonstrated

due diligence in preparedness and use of outside

resources to assist in the mitigation of their risk .

Whether utilizing consulting services made available

by underwriters or third-party auditors reviewing

their supply chain, it is clear that companies who

look to manage the risk of recall in a holistic manner

will be best prepared to survive a recall crisis .

Transfer of risk through insurance is just one

method to prepare for a recall . A successful recall

risk management program must include upfront

quality control, management of vendors and

contracts, and the ability to respond effectively

and efficiently toa crisis . Underwriters and their

partners can assist in developing a successful

recall risk management program by bringing

valuable expertise to their insureds in the form of

crisis communication, quality control and recall

logistics . This expertise can be the difference

in maintaining the safety of your products,

and protecting the trust of your customers .

2014 Conclusions


Bernie Steves is the Managing Director of Aon Risk

Services Crisis Management Practice based in Chicago,

IL . Bernie is recognized as one of the country’s leading

product recall, contamination, and foodborne illness

insurance specialists . With more than twenty-five

years’ experience in this specialty risk management

class, he works with some of the largest companies

in the United States and Canada to address product

recall, contamination, and foodborne illness exposures .

Bernie’s background includes years of experience

from both the underwriting and specialty brokering

disciplines having specialized in this field since 1987 .

He is a frequent author and speaker on the

topics of product contamination and recall

insurance . Bernie is a graduate of the University

of Arizona and holds a Masters in International

Management from the American Graduate School

of International Management (Thunderbird) .

He is a licensed insurance producer and a

licensed surplus lines insurance producer .

About the Author

Canadian Food Inspection Agency

www .cfia .ca

Center for Disease Control and Prevention

www .cdc .gov

Consumer Product Safety Commission

www .cpsc .gov

FDA Food Safety Modernization Act http://www .fda .gov/Food/

GuidanceRegulation/FSMA/default .htm

Grocery Manufacturers Association

http://www .gmaonline .org/

National Highway Traffic Safety Administration

www .nhtsa .gov

Safe Food Act of 2015

http://delauro .house .gov/images/pdf/

SafeFoodAct2015FINALBill .pdf

United States Food and Drug Administration

www .usfda .gov

U.S. Food Safety and Inspection Services

www .fsis .gov

U.S. Dept. of Agriculture

www .usda .gov

http://www .statisticbrain .com/youtube-statistics/

http://techcrunch .com/2014/12/10/not-a-fad/

http://www .statista .com/statistics/264810/number-

of-monthly-active-facebook-users-worldwide/

http://venturebeat .com/2015/02/05/twitter-now-has-

288m-monthly-active-users-but-growth-is-slowing/

Sources

Additional Sources


Aon Crisis Management – Global Product Recall Team

Chicago

Toronto

MexicoCity

NewYork

Bermuda

Brazil

London

Europe

Sydney

HongKong

Crisis Management is part of Aon Risk

Solutions, the risk management and insurance

brokerage business of Aon Corporation .

Going beyond traditional risk transfer solutions, our

global network of product contamination and recall

specialists offers a full range of consultancy services,

enabling clients to quantify their risk exposure and

make informed decisions on the optimum balance

between risk retention, risk management and risk

transfer . Our team of specialist brokers, crisis consultants

and in-house claims management combines threat

assessment, impact analysis and crisis management,

and response with individually structured insurance

programs . Our unique, consultative approach enables

our clients to implement the most appropriate

measures to meet their duty of care and better protect

their balance sheet, people, brand and reputation .

Crisis Management

ContactsChicagoBernhard Steves (312) 381-4945 Bernie .Steves@aon .com

Mary Duhig (312) 381-4503 Mary .Duhig@aon .com

Jessica Stoneback (312) 381-4849 Jessica .Stoneback@aon .com

Marty Detmer (312) 381-5114 Marty .Detmer4@aon .com

Margo Scher (312) 381-4655 Margo .Scher@aon .com

New YorkJean McDermott-Lucey (212) 441-1314 Jean .McDermott-Lucey@aon .com

Joseph Stottler (212) 441-1795 Joseph .Stottler1@aon .com

LondonKary Yates +44 (0) 20 7086 4411 Kary .Yates@aon .co .uk

Andrew Blackburn +44 (0) 20 7086 3254 Andrew .Blackburn@aon .co .uk

Teddy Berkeley +44 (0) 20 7086 0237 Teddy .Berkeley@aon .co .uk

Elton Leung +44 (0) 20 7086 1347 Elton .Leung@aon .co .uk

BermudaChris Heinicke (441) 278-1240 Chris .Heinicke@aon .com

Seamus Durkin (441) 278-1222 Seamus .Durkin@aon .com

TorontoJames Gregory (416) 868-5792 James .Gregory@aon .ca

SydneyKarina Rodriguez Diaz Karina .Rodriguez .Diaz@aon .com +61 2 92537996

Hong KongJulian Taylor +85228624151 Julian .Taylor@aon .com


About Aon Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world’s best broker, best insurance intermediary, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/manchesterunited to learn about Aon’s global partnership with Manchester United.

© Aon plc 2015. All rights reserved.The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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2015 emerging trends in product recall and contamination final

Economy & Finance