Lessons to be learnt from the egg contamination scandal

14 September 2017

When their first line of defence is breached, the best football and rugby teams can deploy a scramble defence. 

It’s not a chaotic response as the name might suggest. Instead players practise how to react under pressure to unexpected situations, so they can deliver the best outcomes when facing unscripted attacks. 

In the commercial environment, it’s called crisis management and contaminated product (recall) insurance is a vital ingredient for companies looking to protect themselves effectively. 

This summer millions of eggs, contaminated with the insecticide Fipronil, have been pulled from European supermarket shelves. Contaminated eggs have been found in 24 EU states and as well as the United States, Russian and South Africa. This is likely to represent only the tip of the iceberg with many contaminated eggs having entered the food chain. For every food and agri company working with eggs, there have been some very difficult decisions to make. 

In the face of consumer concern do they recall their products? How do they identify the potential products affected? How do they test and certify if products are safe? If they’ve handled these products could their production premises be shut down by regulators? 

The eggs arrived in shell-form, as well as in liquid and powdered variations. A huge range of companies handled the eggs within a complex supply chain. There are those that use the liquid and powdered products as ingredients to make everything from cakes and sauces, to desserts and sandwiches. There are then those selling the eggs in shell form, as well as all the wholesalers and distributors in between. It is not difficult to see how a contaminant introduced by a single supplier of cleaning products can spread rapidly throughout the supply chain with significant brand and economic consequences.

As a result of breaches in protocol at Dutch farms, hundreds, if not thousands, of UK companies have found themselves facing difficult commercial questions.

If in place, contaminated product (recall) insurance will help companies come up with the necessary answers. Still, despite potentially crippling financial consequences, many decide not to buy the cover.

Some have the misconception that contaminated product (recall) insurance extends only to the costs associated with the actual recall and decide to leave this risk on their own balance sheets. But that is the thin end of the wedge when it comes to the extent of the cover, and the costs, they’ll have to bear without it.

Contaminated product (recall) insurance will cover the cost of the recall. It can also cover the insured’s loss of gross profit and business interruption costs that arise from the recall, as well as covering third-party loss costs. 

There is then the immediate access to specialist technical help to advise on whether a recall is actually necessary, and if so, how to go about it effectively. Concurrently, the insurance provides access to expert crisis management and PR advice to ensure all communications surrounding the recall are made quickly, consistently and effectively.

In today’s 24-hour news environment effective communication is incredibly important and will minimise any potential reputational damage emanating from the recall. This is especially critical in the food and beverage industry where brand and brand protection is paramount. 

The food and agri sector has never been more complex. Global sourcing, increasing legislation, and intricate and international supply chains have all played a part in growing the frequency and severity of recall events. 

Without pre-loss planning and an effective post-loss response, it can be very difficult to survive the financial hit created by a recall event or to recoup losses from third-parties. Contaminated product (recall) insurance gives companies access to the financial and technical resources needed to mitigate and cope effectively in these situations. 

If the Dutch egg scandal teaches us anything, it’s just how quickly an unexpected event can impact large numbers of companies, and the importance of a scrambled defence. 

For further information please contact Kiran Nayee, Senior Partner on +44 20 7558 3029 or email Kiran_nayee@jltgroup.com

contact Kiran Nayee
Senior Partner, JLT Specialty kiran_nayee@jltgroup.com +44 20 7558 3029