Risk Dialogue Series – Food safety: International regulatory dynamics and the impact of insurance
13 Jul 2015
Food safety is a global concern. The media frenzy around massive recalls immediately garners the public's attention.
Just last month there was a massive recall of instant noodle products in India after local regulators purportedly found harmful levels of lead and MSG in them. The numbers and costs associated with such a recall are staggering. It is estimated that there were approximately 400 million uneaten packets of noodles subject to the recall. That amounts to over 27 000 tons of product. While human health is the paramount concern, the financial impact is enormous. In addition to the costs incurred in the recall, the manufacturer will experience a drop in sales, diminution of market share, loss of consumer confidence in the brand and at least a temporary drop in share price.
New Centre report addresses food safety law and its impact on insurance buying behaviour
"Food safety: International regulatory dynamics and the impact of insurance", published by the Swiss Re Centre for Global Dialogue as part of its Risk Dialogue Series details the development of food safety law and regulation and their enforcement in six important markets – China, Japan, Taiwan, South Korea, EU and US. As the report illustrates, laws and regulation alone do not drive the purchase of insurance, rather it is a combination of factors including cultural norms, legal systems and nationalistic impulses.
Swiss Re publication provides overview of risk management tools for the food industry
Swiss Re gets behind the headlines in seeking to understand the complexities of food recalls by providing data and an overview of best practices in "Food safety in a globalized world – Keeping our food safe in the 21st century". The report concludes that the risk management tools to ensure the safety of the global food supply chain are in place. They must however, continually be adapted to countries in which food safety standards are either continuously evolving or in their nascent stages.
Evolving law and regulation pose challenges for the food industry
The number of food recalls is and will continue to increase. This is not so much a reflection of unsafe manufacturing and handling processes, but rather due to evolving laws and regulatory schemes that focus on prevention rather than ex post facto responses. This phenomena is not limited to developing markets. Both China and the US, the world's largest economies, are undergoing extensive changes to the regulatory landscape for the food industry. As detailed in the Centre's report, China passed amendments to its 2009 Food Safety Law earlier this year. These are the most stringent food safety measures ever enacted in China and expand its scope to cover more segments of the industry.
In the US, The Food Safety Modernization Act of 2011 gave the Food and Drug Administration (FDA) mandatory food recall authority when there is a reasonable probability that a food product is adulterated. On 30 August 2015, the FDA is scheduled to publish the final versions of the Hazard Analysis and Risk-based Preventive Control rules for facilities that manufacture, process, pack, or store food for human or animal consumption. The rules will focus on hazard identification, written food safety plans and preventive controls for all facilities. While seeking to ensure the safety of food in the US, the rules will undoubtedly create new risks for the food industry.
Insurance mitigates the financial risks associated with food recalls
Even the best managed companies carry a residual risk when it comes to food safety. As the risks evolve and increase, insurance is a tool to mitigate losses associated with food recalls and ensure financial viability. Swiss Re is committed to understanding the food industry, the evolving food safety risk landscape and its potential impact on the insurance industry. These publications provide an overview of food safety law and regulation and best practices in food safety. It is essential for the insurance industry to fully understand the industry to be a partner in providing safe and nutritious food to the world's population.