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Overview

Across the globe, the number and magnitude of product recalls has increased significantly in recent years. The U.S. Food and Drug Administration and the U.S. Department of Agriculture documented 1,276 class I and II food recalls in 2012, indicating that on average, 30 recalls occur every week in the United States. According to AIG analysis of data from the European Union’s Rapid Alert System for Food and Feed (RASSF), 939 class I and II equivalent recalls occurred in European Union in 2012, which implies an average of 22 recalls occur every week in Europe.

Although they are more widely reported, a product recall is only one of the potential consequences of a product contamination. Affected companies report the volume of recalled products, but rarely disclose the real cost of contamination incidents. In addition to recall costs, product contaminations can cost food and beverage manufacturers millions in regulatory compliance, lost profit, decontamination, prolonged manufacturing delays and more. Ingredient contamination can be particularly costly, and with today’s global supply chains, can impact even those who do not think they are at risk.

The long-term brand damage to an entire product category, if tarnished, can impact earnings over a longer period of time. Government agencies monitor product contaminations and can force companies to take corrective action ranging from product recall, extended product recall, or suspension of production.  

At AIG, we believe the more you understand about your potential risk exposure, the more informed decision you can make about how to protect your customers, your supply chain, and your bottom line.

Knowing your risk starts with knowing your exposure. AIG’s free and confidential service, the NOVISM Product Recall Cost Estimator, boils it down to one number.

As the inventors of Contaminated Product Insurance with over 25 years’ experience, AIG has the expertise to help you better understand your risk, manage exposures, and make decisions to prevent future contaminations and recalls from occurring. 

Why It's Important?

The more you understand about your potential risk exposure, the more informed decisions you can make about how to protect your customers, your supply chain, and your bottom line.

Food contamination threatens public safety. According to a 2007 Harris Interactive poll1, 55% of consumers said they would temporarily switch brands following a recall incident and 21% would avoid purchasing any brand made by the manufacturer because of health and safety concerns.  Moreover, four out of five respondents indicated general concerns over recent food safety recall incidents.

Product recalls are expensive. For large companies that have faced a recall in the past five years, 77% of respondents to a recent Grocery Manufacturers’ Association poll2 estimate the financial impact to be up to $30 million USD; 23% reported even higher costs.

The potential long-term damage to a brand can eclipse the short-term cost of recalling products. 81% of companies polled by the Grocery Manufacturers’ Association consider the financial risk from recalls as “significant to catastrophic.”  Reputations for providing safe food are valuable assets that firms have an incentive to protect.

The number and magnitude of product recalls and withdrawals is increasing. The U.S. Food and Drug Administration and the U.S. Department of Agriculture documented 1,276 class I and II food recalls in 2012, indicating that on average, 30 recalls occur every week in the United States. According to AIG analysis of data from the European Union’s Rapid Alert System for Food and Feed (RASSF), 939 class I and II equivalent recalls occurred in European Union in 2012, which implies an average of 22 recalls occur every week in Europe.

As global supply chains continue to grow in complexity, so do risk exposures.  Food imports to the United States have grown by an average of 10%3  each year, over the last seven years, according to the Food and Drug Administration (FDA).  In Europe, from calendar year 2000 to 2012, EU agricultural imports increased by from an estimated $53.3 billion to more than $131 billion4.   

1 "Consumer Concern Over Product Recalls High." PR Newswire. Harris Interactive, 12 June 2007. Web. 02 Aug. 2013.   
2 Capturing Recall Costs. Rep. Grocery Manufacturers Association (GMA), Covington & Burling, and Ernst & Young, 2011. Web. 02 Aug. 2013.
3  Pathway to Global Product Safety and Quality. Rep. United States Food and Drug Administration (FDA), 07 July 2011. Web. 02 Aug. 2013.
"Agricultural Exports to the European Union: Opportunities and Challenges." Foreign Agriculture Service. United States Department of Agriculture (USDA), Feb. 2013. Web. 02 Aug. 2013.  

What is NOVI?

NOVI estimates the financial impact of a product recall caused by an accidental product contamination. We help you better understand your risk, so you can make better decisions to protect your customers, your supply chain, and your bottom line.

Your confidential NOVISM Estimate is the largest probable loss arising from an accidental product contamination that occurs during production at the plant level, assuming failures of critical control points in the sourcing or manufacturing of the company’s product. In insurance terms, the NOVISM Estimate is also known as a Probable Maximum Recall Loss. It includes the value of contaminated products, recall expenses, destruction costs and lost profit associated with the contaminated products.

AIG’s methodology is based on an extensive analysis of thousands of recall incidents, insight from over 25 years of interaction with food and beverage manufacturers worldwide, and input from leading food safety consulting companies.

AIG's goal is for NOVISM to provide a confidential, objective and accurate reading of the product recall risk, allowing companies to:

  • Better understand potential recall exposure;
  • Determine the split between the amount of product recall exposure retained on the balance sheet vs. the risk transferred via insurance;
  • Better manage third party volumes or contractual indemnity provisions, by measuring the recall risk at the supplier or contract manufacturer level.
     

Getting Started

The NOVI Estimate is a data point, based on over 25 years’ experience, to help food and beverage manufacturers distributors, and importers to make more informed decisions about their risk.

Any food and beverage company can access NOVI. Third party requests on behalf of such companies are not eligible.

Please use the following steps:

  1. Select the “Request a Questionnaire" tab

  2. Enter the appropriate contact, company and plant location information (for up to three different plant locations). Submit your information for review. For each plant you have the option to select the language in which plant specific information will be collected (see next step – NOVISM Questionnaire).

    Within approximately three business days, you will receive a NOVISM Questionnaire via e-mail containing a confidential questionnaire. The questionnaire is distributed as a PDF form and has a unique identifier for your company and plant. If you registered more than one plant, you will receive one e-mail and questionnaire per each plant.

  3. Complete the NOVI Questionnaire.  Please have the following information accessible to help you complete the process:
    Annual revenue for the manufacturing plant
    Number of operating days
    For the three products that generate the highest sales
        o  Annual revenue
        o  Average "cost of goods manufactured"' and "cost of goods sold"
        o  Number of production lines
    Insurance broker contact details if you chose to have the final result sent directly to your broker.

    All fields are required unless marked otherwise. Selecting a blue help icon will reveal further details on how to complete specific fields. The form can be saved by the user until completed.

  4. Upon completion, please forward your responses on the NOVISM Questionnaire by selecting the “submit” button located at the end of the form.  In approximately three days, your personalized NOVISM Estimate and a questionnaire summary will be emailed back to you. If you chose the insurance broker distribution option, a copy of this will be sent directly to your broker.

NOVI Product Recall Cost Estimator LIMITATIONS

The NOVI estimate does not consider an increase in loss caused by:

  • Regulatory action demanding an extended recall or production suspension; or
  • Loss of public confidence in a product, brand or company, including any costs to mitigate such loss; or
  • Extended interruption of production caused by decontamination or equipment repair; or
  • Loss of contract or license to manufacture a product; or
    Intentional acts including malicious acts.

AIG's Solution

AIG’s Contaminated Product Insurance (CPI) is designed to protect companies against the financial loss caused by a product contamination, whether accidental or malicious. Please find below an outline of CPI describing the insured perils, coverage and services embedded in the policy.  This is only a summary for general guidance and scope, terms and conditions are subject to policy provisions. Coverage may vary by territory.

For more information regarding AIG’s Contaminated Product Insurance please contact your insurance broker.
For information on AIG’s product recall and contaminated product solutions please visit the Contaminated Products Insurance page. 

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