Page 29 - 2016 State of the Market from AmWINS
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All manufacturers are at risk for product food processing facility. This technology “When we began writing this business, we
recall, a threat that has been heightened is a strong tool in the effort to locate the often had to rely on capacity in London
in an era of instantaneous news, social source of an outbreak and has been to get some accounts placed. With the
media fallout, and increased governmental successfully implemented with some abundance of U.S. capacity, accounts
regulation. Companies understand their recent high-profile food-borne illnesses. with limits up to $75 million can now be
exposure, which is driving growth in the placed domestically,” Hanfling says. This
insurance marketplace for both food On the non-food side, interest in recall capacity is putting strong downward
and non-food recall and contamination coverage has been spurred by component pressure on rates. “Incumbent markets
coverage. part manufacturers. “We are seeing more are usually willing to offer a 5 to 10 percent
component part companies willing to buy rate decrease, but new entrants into
The numbers speak for themselves. coverage, particularly in automotive and the market are slashing pricing to gain
According to the National Highway Traffic high tech,” says Matt Carpenter, senior business,” Carpenter says.
Safety Commission, there were 843 vice president and casualty broker at
automobile recalls in 2015 which impacted AmWINS Brokerage in Chicago, Illinois. More markets are now willing to offer third-
59.5 million vehicles. The FDA and USDA “In the past, prospective buyers took a party recall liability in place of third-party
reported 642 recalls and the Consumer long time to make a purchasing decision, customer loss of profit, providing broader
Product Safety Commission oversaw 303 but the decision-making process is coverage. Some markets are broadening
recalls of consumer products. Moreover, accelerating now that buyers are gaining a governmental recall coverage as well
the severity of these events reached better understanding of their risks.” in light of the government’s increasing
an all-time high in 2016. Multiple food authority to mandate recalls or shut down
manufacturers were forced to shut their Claim severity continues to be a key businesses.
doors permanently or for extended periods, concern in this area, with the average loss
while large corporations such as Chipotle far in excess of $500,000. “There have Most markets are also willing to offer
and Volkswagen experienced sharp been some very large claims out there some form of product refusal coverage.
decreases in stock prices. – $30, $40, $50 million – and they are Coverage is triggered when customers
happening regularly,” says Carpenter. refuse an insured’s product because
On the food side of the recall market, competitors are undergoing a recall,
the FDA’s Food Safety Modernization Yet despite the potential for severe claims, in effect creating guilt by association.
Act, passed in 2010, is still a key driver of capacity continues to flow into the product “Product refusal coverage is particularly
insurance purchasing activity. recall market. “Five years ago, only a few important in commodity markets where
markets were writing coverage. Now it has it is difficult for consumers to distinguish
“Over the past several years, budgets for blossomed to more than 15 markets, and between products,” Carpenter says.
enforcement have increased, with federal that continues to grow,” Carpenter says.
and governments hiring more inspectors. “There is an overabundance of capacity In a competitive market that is also seeing
The FDA has the authority to force a in contrast to the number of companies increased purchasing activity, there is
company to recall their products and, in needing it,” says Carpenter. The growth in opportunity for agents and brokers to
the unlikely event they refuse to do so, to U.S. capacity has helped counterbalance grow their business. “We have a team that
shut them down,” says Stuart Hanfling, a slight pullback in the London market in is dedicated to the product recall space,”
senior vice president and casualty broker terms of limits offered and the willingness Hanfling says. “That gives us expertise in
at AmWINS Brokerage in Chicago, Illinois. to provide additional coverages such as the market, a thorough understanding of
“As a result, we see more companies adverse publicity and government recall. forms, and experience negotiating with
recalling products out of fear of the underwriters to obtain the necessary
government or the press.” coverages.”
The government’s ability to trace food- • Capacity continues to flood the market despite increase in claim severity and
borne outbreaks to their source has frequency.
also improved, which will undoubtedly
increase the frequency of future recalls. • Limits of up to $75 million can be placed with domestic markets.
For example, whole genome sequencing • 5 to 10 percent rate decreases from incumbents are common.
is a relatively new technology which allows • Markets are willing to broaden coverage for third-party, government recall, and
scientists to precisely read the DNA or
RNA “fingerprint” of a microbe. If the product refusal coverage.
same microbial fingerprint is discovered
in two or more sick individuals, a link can
be made, which can point investigators
toward the same contaminated food or
