Food for thought: manufacturers’ rising liability bill

Food for thought: manufacturers’ rising liability bill
Many UK food and beverage manufacturers have to buy more insurance due to retailers’ concerns about food fraud.

More than half (56%) of manufacturers are having to spend more on insurance and reduce costs elsewhere as a result. On average, manufacturers have to purchase 13% additional liability insurance.

These findings are from Lockton’s new report – ‘The tipping point: cost cutting pressure piles recall risk onto UK food and drink manufacturers’ – where we surveyed 200 senior decision makers from UK-based food and drink manufacturers and suppliers.

While increased insurance is often a sensible decision to make in the face of increased risk, our research has found that manufacturers’ purchase of more insurance is often involuntary.

A third of manufacturers said they are unable to guarantee the ingredients they use aren’t fraudulent.

Contractual demands

Within the food and beverage industry there is looming fear of food fraud. A third (32%) of surveyed manufacturers said they are unable to guarantee the ingredients they use aren’t fraudulent. In other words, they cannot offer assurance that the raw ingredients used in their products really are as advertised, due to complexities or a lack of information in their wider supply chain.

The horsemeat scandal of 2013 continues to cast a shadow over the industry. Retailers are fearful and anxious of a similar food fraud incident occurring and many consider legal action as a case of ‘when’, not ‘if’. As a result, retailers are asking manufacturers to shoulder greater liability.
 
Lockton’s research shows that 44% of manufacturers are being forced to take out increased liability insurance purely to meet contractual demands from retailers. By pushing responsibility further down the supply chain, retailers hope to shelter themselves from any potential fallout should a recall or legal action occur.

Struggling to compete

40% of manufacturers say they have failed to win a contract due to their inability to meet liability requirements.

Half (50%) of manufacturers expect retailers’ demands on increased liability insurance to price them out of future contracts. Essentially they have to assess whether the profits of a retailer contract will outweigh the costs of the required insurance.

Already 40% of manufacturers say they have failed to win a contract due to their inability to meet the liability requirements expected of them.

Most major retailers will stipulate that suppliers need to have a minimum level of liability insurance as part of a standard contract. More cover is no bad thing, but comes with higher premiums: manufacturers must determine what costs are realistic for them.

Manufacturers must also be prepared to push back in the event of a product recall. Retailers are often in charge of crisis management during a product recall; because they are highly sensitive to reputational damage, they will generally spend as much as deemed necessary to mitigate this. However, insurers will only cover costs that are justifiable and reasonable, so manufacturers need to push back if they are handed an excessive bill.

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