Restaurants and supermarkets in the US have stopped selling certain types of tomatoes because of a salmonella scare. McDonald's, Burger King and Taco Bell are among the fast food chains to have stopped serving raw plum, round or Roma red tomatoes.
The US Food and Drug Administration (FDA), which is still searching for the source of a salmonella outbreak that has affected at least 228 people in some 23 states, has warned against eating the tomatoes unless they are from certain states or abroad.
Produce contamination outbreaks are common in the US and in the past have involved tomatoes or spinach. In 2006 there was an outbreak of deadly e-coli poisoning that was ultimately traced to a single spinach processing company in California.
These types of incidents often lead to adverse publicity that can seriously damage a company’s brand, and ultimately their balance sheet, warns David Palmer, product recall director in the crisis management team at Lloyd’s broker Aon Ltd. “Customers see a health scare associated with a corporate brand, and simply stay away - regardless of the cause, or circumstances,” he says.
But restaurant chains can buy insurance to protect themselves from the financial effects of product contamination. Designed by specialists at Aon and Lloyd’s insurer Catlin, first party insurance is available that specifically covers loss of sales where contaminated ingredients have been used and subsequently caused customers to become ill.
“With ‘household’ brands that are recognised nationwide, food safety is paramount and a loss of customer confidence can be disastrous. A supply related incident that affects a few outlets nationwide can impact the entire organisation,” Mr Palmer explains. “This is particularly worrying for fast food chains that derive their profits from franchisees, and franchise groups who use the corporation’s branding.”
Catlin, together with Aon Crisis Management, created an insurance product that responds to incidents that result from both hygiene issues within the restaurant itself and the contamination of supplied produce, as happened in this recent case. “Typically Lloyd’s insurers can provide capacity of up to $50 million, though a major chain could be seeking $100 million in excess of $50 million, such is the scale of the possible impact,” Mr Palmer points out.
Producers themselves can also buy contamination coverage at Lloyd’s. XL Insurance offers suppliers a policy that covers the costs of getting the affected product off the shelves and/or destroying it. Supermarkets typically pass such costs down the line to their suppliers.
Importantly, the insurance also covers loss of profits as well as rehabilitation expenses related to sales and marketing.
XL’s product is proving successful in the US because it emphasises crisis management, says Ed Mitchell, XL’s senior underwriter for product recall. “Our clients are not simply buying insurance, they are buying crisis management advice as well,” he explains. Called Response XL, the service starts with an initial consultation and provides access to a network of specialist crisis consultants in the event of a claim.
The US Centers for Disease Control and Prevention said that the recently reported cases were all caused by the same unusual type of the bacteria, Salmonella Saintpaul. Symptoms of salmonella, which usually appear within 12 to 72 hours of eating contaminated food, include diarrhoea, nausea and vomiting, headaches, stomach cramps and fever.
Too many companies think it will never happen to them but food produce recalls happen all the time, Ed Mitchell says. And there is increasing pressure on producers from regulators and customers to demonstrate supply chain resiliency. “Having the procedures and resources in place to handle a recall differentiates you from your competition and strengthens relationships,” Mr Mitchell stresses.
