Invest in technology across the overall technology stack. Aberdeen advises that organizations identify gaps in their technology stack and begin to fill those gaps with the solutions that will most effectively improve overall food safety and traceability. It is recommended that organizations start with enterprise resource planning (ERP), if it isn't already implemented, as 73 percent of best-in-class companies currently use it. As the organization matures, technology should be introduced whenever it makes sense for the organization. If product development and formulations is a firm's core competency, product lifecycle management (PLM) would be a good investment. If it's manufacturer operations that need improving, manufacturing operations management (MOM) software might be more suitable. If an organization lacks effective quality control, it should focus on a quality management system (QMS).

Contrary to news headlines, food and beverage manufacturers are actually on par or outperforming the industry average in every metric.

"Today we're seeing a growing focus among food and beverage manufacturers to proactively combat risk by implementing automated solutions to ensure food safety, curtail the potential for recalls, and boost overall consumer satisfaction," according to Nikki Willett, VP of Marketing and Regulatory Affairs at Pilgrim Software, which sponsored the Aberdeen report. "Companies that are proactive in dealing with these issues now throughout the product value chain (farm to fork), and focus on implementing new safety solutions, will reap the rewards of greater efficiency and lower cost."

It was one year ago that a salmonella outbreak was linked to peanut products, leading to nine deaths and more than 700 illnesses. The company that produced the products has since declared bankruptcy, lawsuits are pending and food-safety reform awaits a Senate vote.

For now, manufacturers must continue to build compliance and traceability into their production processes, with a focus on creating product and process traceability through every stage of a product's life cycle.

Resources

Food Safety and Traceability: Keeping Consumers Healthy and Happy
by Matthew Littlefield and Mehul Shah
Aberdeen Group, November 2009

Latest Trends in Food Safety and Traceability
Pilgrim Software and Aberdeen Group, Dec. 16, 2009

Michael Taylor: Food Regulators Shift Focus to Preventing Outbreaks
by Lynne Terry
The Oregonian, Jan. 20, 2010

H.R. 2749: Food Safety Enhancement Act of 2009
GovTrack.us, Jan. 6, 2010 (last updated)
===========

Peanut butter.  Ground Beef.  Chicken burgers.  Chili with beans.  Cookie dough.  No, I'm not

rattling off my grocery list.  Rather, this list of food - many of which may very well appear on our grocery lists - represents some costly product recalls of 2009. 

According to the Centers for Disease Control and Prevention, more than 76 million cases of foodborne illness occur each year in the US, resulting in thousands of deaths.  These statistics have many, including Congress, increasingly concerned about food safety.  Concerns are further fueled by outbreaks like this fall's outbreak of

Salmonella in peanut products, traced to the now-bankrupt Peanut Corporation of America.  Deemed

one of the nation's worst known outbreaks of food-borne disease, the contaminated peanut products

involved resulted in nine deaths and 22,500 illnesses and is estimated to cost the peanut

industry more than $1 billion. 

READY FOR RECALL
by Ed Mitchell, Global Product Recall Manager, XL Insurance
and Steve Gruler, CEO, Global Quality Consulting

In 1906, Upton Sinclair's novel The Jungle exposed poor work and unsanitary conditions in the

U.S. meat packing industry. The book prompted social outrage and eventually led to the passage of

landmark legislation including the U.S.'s Meat Inspection Act and the Food and Drug Act, which

led the way for the creation of the Food and Drug Administration (FDA). More than a century

later, stories of food safety and contamination are not central to any novel's plot, but are

making news headlines and are likely to prompt more government intervention in food safety

issues.

The interesting aspect of the pending legislation this time is the shift in emphasis on the

government's view of its responsibilities for ensuring food safety. In his weekly address of

March 14, 2009, President Obama commented about his appointment of Dr. Mary Hamburg to the

position of Commissioner of the Food and Drug Administration: "There are certain things only a

government can do. And one of those things is ensuring that the foods we eat, and the medicines

we take, are safe and don't cause us harm."

The price of contamination outbreaks in food can be costly both monetarily and in the loss of

human lives. For instance, consider the estimated $1 billion loss to the U.S. peanut industry as

a result of a salmonella outbreak last year. It led to the biggest food recall in U.S. history.

The U.S. Center for Disease Control and Prevention (CDC) reported that 714 people were sickened

and nine deaths resulted in the outbreak linked to foods using peanut ingredients made by the

now-bankrupt Peanut Corp. of America. According to the CDC, 76 million cases of food-related

illnesses are reported every year with over 300,000 hospitalizations and 5,000 deaths.

CONGRESSIONAL ATTENTION

As a result of these high profile and deadly cases, food safety has Congress' attention. In March

2009, President Obama established the President's Food Safety Working Group. On July 7, the

Working Group issued its key findings on how to upgrade the food safety system based around three

core principles of prioritizing prevention, strengthening surveillance and enforcement, and

improving response and recovery.

Last November, the Senate unanimously passed the FDA Food Safety Modernization Act (Senate Bill

510). The bill, originally introduced in the Senate in March, is very similar to the Food Safety

Enhancement Act of 2009 (HR 2749), which passed the House in July. In testimony to Congress, Dr.

Hamburg noted how this legislation would transform the U.S.'s approach to food safety from

responding to outbreaks to preventing them.

According to FDA Commissioner, Dr. Hamburg, the new regulations under Congressional discussion

would require and hold companies accountable for understanding the risks to the food supply under

their control and then implementing effective measures to prevent contamination. The legislation

seeks enhanced ability for the FDA to:

Require sanitation and preventive controls at food facilities (based on a scientific hazard

analysis);
Access basic food safety records at facilities;
Keeping roof drains clear of debris to prevent build-up or pooling of water;
Establish basic standards for preventive controls;
Require facilities to conduct hazard analyses;
Implement preventive controls; and
Require companies to have a comprehensive food safety plan.
Perhaps of most significance is that the bill also aims to grant the FDA the ability to require

mandatory food recalls in certain situations. Currently, other than a few exceptions, recalls are

carried out on a voluntary basis. This proposal would take the ultimate decision for a recall

away from food companies.

INCREASING EXPOSURES

In addition to potential regulatory changes, food companies also need to look at the improved

methods of linking food borne illness outbreaks to particular producers. In the past, linking

illnesses across multiple states to a common cause was like finding a needle in a haystack. The

CDC however is now increasingly able to trace and link these outbreaks through improved data

passed on by hospitals and health practitioners. A few years ago, companies may have not realized

that their products were making consumers sick — due to the lack of scientific evidence — and

therefore would not initiate a recall. Today, there is a greater likelihood that outbreaks will

be traced back to the company or companies responsible for the contaminated product causing the

illness.

Going forward, recalls will not only be about linking actual illnesses to culprit products. They

will also hinge upon how a company implement's FDA's new preventive measures. Rather than waiting

for either consumer complaints or finished product positive test results to determine a recall, a

company may be required to recall if the FDA determines that the company's product was

manufactured in unsanitary conditions in breach of food regulations. It may be determined that

those conditions created the potential for products to be adulterated, even if there may be no

evidence in consumers or the end product itself.

Already this year, there have been several cases along these lines including the FDA's

announcement in the first week of January about its intentions to ask a federal court to shut

down a New Jersey cheese manufacturer. The company had an alleged history of operating under

unsanitary conditions and producing cheese contaminated with Listeria monocytogenes.

How the practicalities of implementing the FDA's requirements end up will depend on the outcome

of the Food Safety Enhancement Act once it comes before the Senate this year. However, should

mandatory recalls become part of legislation, it will be critical for food companies to be on top

of their game when it comes to food safety and recall preparedness.
 

IMPROVING QUALITY AND READINESS

Most companies in the food industry have solid systems in place and make these activities part of

their day-to-day risk management efforts. For those that don't however, these efforts to update

out-of-date food safety regulations should be more than enough impetus. Businesses involved in

the growth, production or preparation of food will need to reinforce their quality and risk

management strategies to not only avoid food safety issues but also to financially prepare

themselves to respond quickly in the event of a product recall.

For food producers, having proactive quality systems in place is a key risk management strategy

in preventing contamination from happening. It can also help minimize reputation damage. Well

risk-managed food companies will no longer view food safety as seeking compliance to a regulatory

minimum standard but will instead be looking to get ahead of the game. Correctly implemented

HACCP (Hazard Analysis Critical Control Points) plans that focus on the most relevant food safety

and brand equity risks to the business and risk-based supplier management systems are two

effective and proactive tools in mitigating risk to food companies' recall exposure and brand.

In today's global market, the supply chain presents significant risk management challenges.

Having an appropriate traceability and recall plan in place is critical to managing supply chain

risks. At a minimum, companies are required by the Bioterrorism Act to have a traceability plan

that adheres to the "one step up, one step down" principle so that the company can immediately

know both the person from whom the product (or its ingredients) came and the next person to whom

it has gone.

For years food companies have relied on certificates of analysis as a confirmation of food safety

for their supplied goods. Companies can, however, go even further to improve that risk by

building in testing programs for supplied ingredients and products as well as carrying out

appropriate due diligence of suppliers such as site risk reviews, obtaining critical performance

data as well as food safety and GMP audits. The Peanut Corp of America recall is a salutary

reminder of the importance of knowing how safe supplied ingredients are.

Even companies with excellent food safety may need to review their risk management efforts. With

the likelihood of the FDA having access to company recordkeeping, it will be increasingly

important to be able to demonstrate that a company has a good handle on the scope and severity of

a recall should one be necessary. This means implementing an effective sanitation, testing, lot

coding and batch management program in order to minimize the potential size of a recall. Given

the potential for incurring enormous costs in recalling a product, it is vital that a food

company can quickly provide the right data to the FDA to be able to isolate and segregate

contaminations and to ensure that the FDA will agree with the company's data. If a company cannot

demonstrate to the FDA where a contamination began and ended, there is a much higher chance that

the recall's scope can effectively be left open-ended. Recalling a few weeks worth of product may

be manageable for some companies. Recalling a year's worth of product, which has been seen over

the last few years in a number of cases in the U.S., could be financially devastating not to

mention ruinous from a reputation standpoint.

A PLAN OF ACTION

A sound food safety program, traceability system, recall and crisis plan and business continuity

plan should be part of a food company's risk management strategy. Prioritizing prevention is

critical and is one of the three core principles of the President's Food Safety Working Group.

Being prepared to handle the crisis is of huge importance also because a company will be judged

by the regulators, the media and consumers on its ability to manage a recall well. Ultimately a

company's reputation lies in the hands of these three groups in a time of crisis.

While Product Contamination insurance is available to address the direct and indirect costs

involved in the recall of food products, it is important to look at how coverage responds to

addressing the expense and implementation of crisis management. For insurance providers, the

question is not only how they can help prepare their clients to handle a recall but also how to

assist them in addressing the changing regulatory requirements to ensure the implementation of

best practices for managing a crisis. This is why Product Contamination insurers see value in not

only providing their clients with coverage to help pay for a range of specialist recall and

crisis consultants but often offer upfront guidance to develop an appropriate plan of action to

handle a recall.

While Product Contamination insurance is available from a growing number of insurers, it is

estimated that only a small percentage of food companies are carrying the coverage. That might

change given the current regulatory atmosphere. In fact, some industry leaders believe that, as a

result of possible mandatory recalls, recall insurance or other financial protection may become a

regulatory requirement itself in due course.

While traditional Product Contamination insurance will be more of a necessity in the food

industry's risk management plans, greater attention to quality control and advance crisis

management planning is of equal and growing importance. Being prepared for a product recall in

advance of it happening could be the difference between disaster and a client's survival.
=======

Recall Headlines Spur Product Recall Coverage Interest

Amy O'Connor
February 26, 2010

The recent Toyota auto recall headlines, and other major recall cases from the last year, have

caused companies involved in manufacturing or food processing to reevaluate whether they need to

purchase product recall insurance, according to companies in the product recall insurance arena.

"We are seeing a real uptick in the past few weeks from component part manufacturers inquiring

about coverage," says Eric MacDougall, senior vice president of MRM Group, a company that

specializes in product recall coverage for small manufacturing and food industries.

MacDougall also points out that there has been an increase in the number of contracts that

require recall insurance, either in the form of indemnification agreements or proof of recall

coverage.

Product recalls have become much more common in the last few years. The Federal Drug

Administration had 18 food and drug recalls from Feb. 1 through Feb. 19 and there were 21 listed

for February on the Consumer Product Safety Commission Web site as of Feb. 23.

The jump in product recalls has led to an increase in awareness of product recall coverage by

manufacturing and food and beverage companies, according to underwriters.

Product recall insurers have also come to realize that food and component part manufacturers have

a bigger exposure than they originally thought. Companies can get parts or ingredients from many

different sources, which makes tracing the cause of a contamination or product malfunction

difficult. Because of this, insurers have changed the rating base and the underwriting process to

address questions like: Where is the product going? What is the shelf life of the product? What

are the history and safety practices of the company that provided an ingredient or part for the

product?

"There is more complexity in these accounts than we originally thought," MacDougall says.

"[Addressing these questions] will make the coverage a lot more expensive, which is the next step

of the process."

MacDougall expects to see an uptick in the pricing structure of these accounts as insurers see

the fallout and headlines of product recalls and consumers become more anxious about what they

are buying and from whom.

CAPACITY INCREASING

Capacity is a major issue for the product recall marketplace because of the high loss ratio.

Currently, Chartis and Lloyd's of London are the largest product recall insurers. More companies

have ventured into this area in the last few years, such as Liberty Mutual which entered the

marketplace in 2008, and XL, which established a product recall facility in London in 2006. Last

year, C.V. Starr and Crum & Forster came in, and Zurich also has a U.S. product recall operation

and launched a UK facility in mid-February. The recent capacity additions are mainly in the food

and manufacturing industries. Auto manufacturing is still very limited and will likely remain

that way, according to experts.

MRM Group works with Lloyd's and becomes a coverholder for the carrier in the United States on

March 1. The new status will give MRM the ability to work with agents nationwide on a broader

scope and offer higher limits and pricing without needing to get London approval first, unless it

has anything to do with the auto industry.

"Over the past couple of weeks we have had to refer anything that has an auto exposure to our

lead underwriters before we can quote," MacDougall says. "Anything that is auto related has to be

signed off on and that probably won't change."

Carriers provide different product recall forms because every recall policy contains nonstandard

wording and each carrier has different recall appetites. That is why it is important for agents

to be knowledgeable about the marketplace and their clients' needs so they can provide the right

scope of coverage.

"[Agents] need to know where the markets are, what their respective appetites consist of and what

loss control engineering they are capable of," says Louis Lubrano, SVP of Liberty International

Underwriters Global Crisis Management.

Lubrano says agents also need to be aware of a client's recall exposure in the first place, as he

finds one of the biggest mistakes agents make in this segment is not adequately addressing the

recall exposures of their client base, particularly in the food business.

PUBLIC RELATIONS SERVICES

In January, Crump Insurance Services, Inc., a wholesale broker that has been placing product

recall coverage for over 10 years, released PRODUCTSplus, a general liability and product recall

combined form. The coverage is targeted toward the manufacturing industry and includes crisis

management services from Specialty Risk Management, loss of gross profits, and recall expenses

both first and third party, all of which are not typically included on the general ISO recall

endorsement.

"If an insured has a recall, unless they have a recall/crisis management contingency plan in

place, they typically don't know where to turn," says David Fiske, senior vice president at

Crump. "Crump's product includes both the recall coverage component and the prearranged services

of an on-call crisis management firm to help the insured navigate through the entire recall

process."

Public relations coverage is touted as a big benefit of a recall package because it ensures

proper handling of the publicity if and when a recall occurs. The belief is that customers of the

product recall insured are more likely to be forgiving if the company comes out and owns the

problem and provides solutions quickly rather than mismanaging the situation, something Toyota is

now being accused of.

MRM Group also provides crisis management with its product recall coverage and approaches

accounts with a comprehensive package that includes loss prevention steps.

Many companies do not understand the full cost of a product recall and do not purchase the

coverage because they do not think it is something they will need, say underwriters. But they

warn that while claims can be infrequent, they are severe when they happen and brokers must put

that into context for their insureds.

When a claim occurs, "It's a multiple loss," MacDougall says. "There is not just the expense of

the recall. The larger part of the claim can be the loss of revenue when a customer stops buying

from the company that has the recall. That company can lose millions of dollars in sales over

publicity."

Ultimately, it could be how a company handles the recall situation that decides whether it has a

fighting chance to survive.

In the case of Toyota, it is likely that the automaker is self-insured for product recall

coverage, which is typical of large auto manufacturing companies. The company will no doubt see

many claims from all angles, including consumers, dealers, and state attorneys general, to name a

few. Attorney Mark Bunim, chairman of Case Closure, LLC a legal firm that provides mediation and

arbitration services, expects the legal and financial repercussions will drag on for Toyota,

especially with consumers who will be wary of the automaker.

"It will be awhile before consumers want to buy Toyotas again," Bunim says.