Placing You First Insurance Podcast by CRC Group
The Placing You First Podcast spans a diverse spectrum of insurance industry issues to keep you and your clients informed.
Placing You First Insurance Podcast by CRC Group
Unpacking Food Recall Impacts
Imagine the financial and logistical nightmare of discovering that a single contaminated ingredient has infiltrated multiple food products across your supply chain. That's exactly what we're examining with John O'Malley and Chris Martin from CRC Group's Minneapolis office. This episode unravels the complex web of costs and liabilities that ensue from food recalls, using real-world incidents to stress the importance of proactive risk management and the critical role of comprehensive recall insurance to safeguard against these multifaceted challenges. We share essential strategies, from stringent quality control processes to implementing test and hold policies, we discuss how to ensure contaminated products never reach consumers. Don't miss this episode—subscribe and share!
Visit REDYIndex.com for critical pricing analysis and a snapshot of the marketplace.
Do you want to take your career to the next level? Join #TeamCRC to get access to best-in-class tools, data, exclusive programs, and more! Send your resume to resumes@crcgroup.com today!
A food product. Recall can be costly for a food manufacturer, but what if the contaminated food is shipped to other manufacturers and used in other products? What if those products then hit retail shelves? Today, scott and I are joined by John O'Malley, a broker with CRC Group's Minneapolis office, where he specializes in product recall risks office, where he specializes in product recall risks. Joining John is Chris Martin, also a casualty broker and president of our Minneapolis office, also specializing in product recall. They're going to talk with us today about how retail agents can help food manufacturers identify their potential risk and take steps to minimize recall damage exposure. This is the Placing you First podcast from CRC Group.
Scott Gordon:This podcast features news and insights from a vast knowledge base of over 5,100 associates.
Amanda Knight:Who write more than $35 billion in premium annually. Plus, we give you the latest information on what's happening at CRC. This, this, this is the Placing you.
John O'Malley:First podcast and now the hosts of the podcast, Amanda Knight and Scott Gordon.
Amanda Knight:Welcome back to the podcast guys. It's good to have you back.
John O'Malley:Thanks for having us.
Scott Gordon:Yeah, you guys will get the like in SNL when they give you the five timers club. You guys are on your way. So some of our more popular guests today. So let's start off with a little question. According to Consumer Affairs analysis of FDA data, there were 578 food products recalled in the first six months of 2024. We looked at the top 10 of those food recalls. Can either of you guess which food group five of those 10 were?
Chris Martin:man, I would say how about, uh, like leafy greens maybe? I?
John O'Malley:I was gonna say the same leafy greens some meat maybe the answer is uh, dairy of some kind, cheese, yogurt, whey, et cetera. Salad greens were two more of the 10. So yeah, things that tends to perish quickly, I think is the theme.
Amanda Knight:Well, I was actually going for dairy as the correct answer if we want to be technical about it, like some form of dairy product, dairy product. Interestingly enough, though, if you read the companion article that goes with this podcast, you'll remember we mentioned a cheese manufacturer. That was one of our examples in that article. Three of those five dairy-related recalls that hit the top 10 list were connected, so a cheese manufacturer had to recall cheese that had already been distributed and used in other products like salad kits, burritos, etc. So that triggered two of the other recalls on that top 10 list for the first half of 2024. Chris, to see, really, you know what I would consider or I guess the whole world would consider big recalls if they made the top 10 connected in that way where you've got one that just spawns another and another.
Chris Martin:Yeah, I think for sure it is. And I think recently we've seen the last few years with the popularity of salad kits increasing. I think those have been particularly susceptible to this. Like they, they tend to have a lot of issues because you're throwing just a bunch of different products together and they're, all you know, sort of perishable in that same way. So that can that can be an issue. And then the other one you know that's obviously a big deal is any kind of ingredient. So these ingredients, that, and you know, and the more basic the ingredient, probably the more of a risk there is. Like, so if you get down to things like you know, spices and things like that, that can really go into a number of different products. And if there's an issue with the spice, then there's an issue with everything that it has gone into and they can trace those back. So those tend to be a big deal.
John O'Malley:Yeah, I think. And just in recent history I remember a large peanut butter recall and a large oatmeal recall. Both of those became very large just because they were incorporated into so many different things. You know, peanut butter obviously is incorporated into other snacks and crackers and candy and things like that, so it goes a long way. You might think of peanut butter just in a jar, but it's also used as an ingredient in so many other things and so those recalls tend to spiral and get very large very fast.
Amanda Knight:So let's make it easy to sort of let someone wrap their mind around how fast, in fact, this can ripple outward. So, john, I'm going to tag you in here in a second Walk us through what happens if a pound of cheese worth $20, I guess that's some expensive cheese makes it out of the factory and let's say it were to hit 500 salad kits or be in the vicinity of the line where 500 salad kits are produced. So that cheese is going a long way if we're putting it in that many salads. But that's a different issue. That 20 pound, or that $20 pound of cheese right, that one pound has now hit all of those salad kits. So if we've got a $20 hunk of cheese and 500 impacted salad kits, that original $20 loss is now worth how much. John, did you know you were having a math quiz today?
John O'Malley:Oh man, let me get my calculator. Yeah, certainly that's how these things kind of happen. Obviously, the cheese itself might be innocuous to the cheese manufacturer. $20 pound of cheese, if that thing doesn't make it out of the factory, okay, he's out $20. But if that $20 pound of cheese is now spread across so many salad kits let's say 500 salad kits in this case worth $5 each that pound of cheese is now incorporated into all those salad kits. So you got $20. That's now into 500 salad kits worth $5 each. That's now a $2,500 loss. That cheese manufacturer is obviously responsible for those salad kits now that their cheese is now contaminated. So let's just make that a little bit bigger. Let's think of 1,000 pounds of cheese going into 500,000 salad kits. That obviously gets very big very fast and that cheese manufacturer is going to be on the hook.
Scott Gordon:Yikes, it's like when I get my five-cheese pizza. It's like, technically, four-fifths of that pizza is still edible, but I cannot eat it because it's mixed in with the bad stuff. So there goes, all those five cheese pizzas, right, that's right, you're really rolling the dice, I know right, but hey, I like what I like.
Scott Gordon:I just bragged on you guys about how you brought great real world examples to our wonderful little podcast here, so do either of you have any other examples of recalls that have had either a widespread impact beyond the initial manufacturer or things you've dealt with personally?
Chris Martin:I guess I would say I mean there's a couple that are just jump out, like the peanut corporation of America recall from years back, where that's a peanut butter recall, but I mean it really hit a lot of different products. I mean you had cliff bars getting recalled because of that and you know just many other. You know products that got looped into that one. And then I can also think of one that we wrote that was a powdered milk manufacturer and that ended up getting into. You know quite a few. I mean you have dried milk product in any number of products that you don't even know. It's in there. But it's in there in most things, almost, so that one was really widespread as well.
John O'Malley:Yeah, and I think, just for me personally, the peanut butter one kind of affected me as well, as the oatmeal one affected me as well, just for having young kids. All these ingredients are incorporated to a lot of snacks that kids eat. So you know you have to go through your pantry and make sure that you check the labels and see if any of these products were associated with the recalls, and some of it was so. On a personal level, these recalls have definitely affected me in the last five years or so.
Amanda Knight:So, knowing that food contamination can have serious health even, obviously, life or death consequences, what advice would you guys give to a food manufacturer or distributor facing their first major recall? How do we help them keep the impact as small as possible?
John O'Malley:I think it starts with trying to prevent an incident from ever occurring. So that would start with, you know, great quality control processes and then post-contamination procedures, making sure everything's on paper, everything is easy to follow for the employees and the workers at these facilities, and making sure they're doing the right things from the start, certain tests and whole procedures in place. There are certain things they can do to help prevent an occurrence from happening in the first place. So a robust test and hold policy, which means inventory doesn't leave until it's been cleared of testing of contaminants and can ensure that a contaminated product never reaches a store shelf or another manufacturer's assembly line.
John O'Malley:Certainly, if a contamination does happen, it's essential to have procedures in place to act quickly, reduce the exposure, and that sort of quick, decisive action can help preventing the recall from extending outside and going into other retailers and manufacturers. And then, of course, you know, leveraging recall insurance and covering those third-party losses. Product recall insurance, you know, protects against a wide range of recall costs, including the product loss, revenue loss fines, judgments and even reputational rehabilitation costs. Policies should also cover the impacted third parties, such as retailers, distributors and other food manufacturers that might be using the insureds as ingredients in their products. So many policies also include services to help mitigate the impact of recall. For instance, the crisis consultants that are retained in these policies can help the clients run through pre-event services and procedures, such as quality control programs and the recall programs, running through mock recalls with them to make sure they're ready for when an event might happen.
Scott Gordon:Well, and this might be a little redundant on that, but can you walk us through the process of determining the right level of recall insurance for a manufacturer?
Chris Martin:Yeah, I guess I would say it's a pretty complicated process and it really, you know, depends a lot on the kind of company and the kind of you know process and outfit that we're talking about, because there isn't, like a lot of you know, really good benchmarking rules for this type of insurance, because you need to look at so many different factors. But I think some of the things that we we look at are, you know, for, for starters, what is the product? You know, do you have a really wide spread of products? So is it a company that makes 14 different kinds of products or is it a company that makes one type of product? So you have, you know, $20 million in sales? Is that all one thing or is it spread out between a number of things?
Chris Martin:Like, that's one part of it. Another part of it might be whether or not they have multiple manufacturing facilities. So if you just have one facility and all your $20 million of revenue goes through that one facility, that probably makes a difference too, because you can have an environmental issue and that's very unlikely to affect more than one place at a time. So that can have a factor on it. Seasonality of products can have a factor, so you might have like something like apples in the Northwest or something like that. That's got a very seasonal exposure where you're going to have a really high quantity of you know. A big percentage of your overall revenue is going to come off in a few months time and then slow down over the over the rest of the year. So there's a number of factors that can play into it for sure.
Amanda Knight:Um, when you're looking at that, knowing, knowing how dangerous a recall can be, depending on whatever illness is connected or contamination is connected, are companies required by regulatory agencies to carry this kind of insurance, or is this voluntary?
Chris Martin:I would say less likely that they're required by government agencies to carry it, but a lot more likely that they're required by customers in their contracts to carry it. So that can happen quite a bit, particularly driven from big retail outlets. So we see a lot of this with, like the Costco's of the world and things like that, demanding that that people buy recall insurance or you know, even like more, you know just where you're in the in the chain of supplier and you know and buyer you're in the chain of supplier and buyer. So a lot of times they'll put that into a contract that they have to have insurance for this, and almost every time, honestly, even if some of these require insurance, but almost all of them require that you be responsible, If you're not buying insurance, that's fine, but you still owe us for these kinds of expenses should you cause them. So either way, the insurance can help a lot.
Scott Gordon:How can partnering with a CRC group producer help agents with food manufacturing or distribution insurance?
Chris Martin:Yeah, I think, john. I think we'd like to say that we have a lot of experience in this line of coverage. I've been at it for 20 years plus now, and John's been at it for seven or eight, so this has been something that we've been dedicated to for a long time. I think what I would say is that this line of coverage has evolved a lot and continues to evolve pretty quickly. You've got new markets, new forms, new coverage grants, things like that that we're keeping track of. We have great relationships in the market with our underwriting partners and we have great relationships with claims teams at those carriers. So all those things you know, we think help facilitate, you know, a good relationship and a good outcome.
John O'Malley:I think the specialization and the experience that we have in the space you know, we stay on top of market events and trends and in a niche space like product recall, things are constantly evolving. So having someone in your corner that stays on top of those things things are constantly evolving, so having someone in your corner that stays on top of those things I think is vital.
Scott Gordon:Well, we love having you guys on. You're great, and I know that you only come on for one reason, and that is to do our rapid fire at the end here, where you get your questions. Amanda comes up with the questions and Amanda this first one really speaks to me. Here we go, guys. I knew it would. Is there a legend, myth or conspiracy theory out there that you really want to believe, that you secretly hope is real, and if so, what is it?
Chris Martin:Bigfoot Bigfoot's a good call. Loch Ness Monster maybe. I feel like, is there one that I don't want to be true? I think you can go that way. Yeah, I would say Bigfoot's a great call. That'd be awesome if we just somehow just found Bigfoot, Wouldn't that be great? I think maybe the Area 51 stuff with the aliens too. Like I don't know.
Scott Gordon:I'm always, you know, a big alien conspiracy guy, so well, a few years ago I don't know if you guys remember this, but there was a story about these guys in Georgia, these hunters who claimed that they had caught, killed and frozen a Bigfoot and they had it in a cooler and they were going to reveal it at a news conference. And where I was working, we all got together and watched and of course it's fake, but it looked real and I was like guys, this is real. And I just went overboard and I declared and I have it on the calendar and I want to say it's August 15th, national Bigfoot Day. It's on my calendar and I created it and I think it's coming up. Amanda, I think it's this coming week.
Amanda Knight:I'll have to double-check, I'm surprised you had to create it and there wasn't already one.
Scott Gordon:There probably is, but I'd like to think that my version is better.
Amanda Knight:You're the OG.
Scott Gordon:And Facebook plug. I actually have a page, a group on Facebook called the Church of the Divine Bigfoot. It's got like seven people. I created it like 10 years ago. I don't know whether it's still there or not, but look it up. Um, so yeah, bigfoot for me, a big, big foot. Um, okay, our second question. Sorry to derail that, picture this you have your own late night talk show. Okay, who do you invite as your first guest? And it could be anyone celebrity, athlete, historical figure. You know, the first people that come to my mind are just normal talk show. Okay, who do you invite as your first guest?
John O'Malley:and it could be anyone celebrity, athlete, historical figure you know, the first people that come to my mind are just normal people. Would be my brothers. I think that would just be fun, um that is so sweet I. I don't know if that'd be entertaining enough for everybody. They might get bored, but for me it would be fun. I don't know, chris, you got anybody?
Chris Martin:I, I guess I'd go like Lee Harvey Oswald. Like I, I'm still on the first question. I think I'm still on the first question, I'm still stuck there, you're bringing them together, we're bringing them together, yeah.
Amanda Knight:Well, thank you both for being here. We love having repeat guests. If John and Chris sound familiar, they were also guests on our episode about the modernization of cosmetics regulation act, so if you haven't given that one a listen, definitely do that next If you're a listener. Thank you for joining us. We appreciate you. Don't forget to subscribe and share. Providing current insights into the marketplace is just one more way CRC Group is placing you first.
