By Melissa T. Stock
Bottles. Ingredients. Advertising. Labeling. Insurance. The list goes on and on when it comes to taking care of your business. However, while packaging and labels are high on the to-do list, insurance is often a last thought or after-thought that falls somewhere behind purchasing a corporate jet. While this may seem like somewhat of an exaggeration, food industry insurance expert Michael Coughlin of the Coughlin Group in Larchmont, New York, describes this as the “chicken before the egg” syndrome, observing that insurance coverage is often number 1001 on a long list of top priority projects. “I talk with a lot of companies who feel like they don’t need to worry about it until they really get up and running with their product and are doing some volume.” Unfortunately, he says, many people don’t even look into the possibility of insurance until after their first year of business, or when someone they are doing business with says they have to have it, or until disaster–or litigation–strikes.
Pay Now, Or Pay Later
So what about this insurance thing you say to yourself–do I really need it, and how much is all this happiness going to cost me? The answers are yes, and it depends. It’s a fact that some companies are hiring staff attorneys to do everything from collections to threatening law suits. In today’s litigious society, no prudent business person in their right mind would consider doing anything with the public without some sort of minimum insurance coverage. That minimum, according to Coughlin, is the proverbial million dollar question. While it often comes down to the reality of what a person can afford, he says, the accepted rule of thumb for anyone who manufactures or distributes food products on a small scale is $1,000,000 in liability coverage. That “bare bones” coverage for a small manufacturer, according to Coughlin, is only going to cost $750-$1000 a year–not a bad deal when you consider that if you are sued while not insured, you will have to pay an up front retainer between $5,000 and $10,000 to hire an attorney.
Protection and Authentication
The bottom line is that to be a real company, you need to have insurance. That’s the word from every hot shop, gourmet shop and grocery store we talked to. In fact, most stores require to see a certificate of insurance before they place their first order. Some require to see proof of coverage before they will even consider a product for placement. Just as your vendors have the right to ask for verification of sufficient insurance, it makes good business sense for you also to ask for certificates of insurance from suppliers who are a part of your business, from bottlers, to co-packers to distributors.
According to Coughlin, insurance coverage can and should be configured based on the particulars of your business, whether it’s big or small. What about your warehouse? Employees? Aunt Zelda who runs errands for you? Coughlin advises all of his clients to look at the big picture, in terms of what they insure. “Maybe you have employees who deliver cases of your products to stores or to the cannery in their own cars. If they get in an accident and get injured or kill someone, you could be named in a claim since they were on the clock.”
Go With a Pro
While the insurance agent who takes care of your home and car coverage may be able to meet your everyday needs, you might want to consider finding an agent who offers coverage specific to your industry or product as a regular part of his or her business. In fact, working with specialized insurance agents may actually be less expensive, since they work with your type of liability every day. You may also benefit from the volume they do, as well as save time since the agent won’t have to do as much leg work. Finally, make the time to get more than one quote, and make sure you understand what you are paying for. A good agent will take the time to find out about your business, as well as present an easily understandable proposal. Remember, the right time to find out about insurance is before, not after, your warehouse burns down.
There are many different coverages besides product liability that you may want to look into for your company. Here is a list of a few additional endorsements to ask a prospective agent about:
1. Brands and labels
2. Property in transit
3. Property at fairs and exhibitions
Food Industry Specific Risks
1. Refrigeration equipment insurance
2. Rejection insurance to cover the cost of a shipment of imported food in case it is rejected by the U.S.D.A.
3. Internal “shrinkage” and theft coverage on bulk liquid products such as olive oil
4. Ocean, cargo and U.S. Transit coverage
Consumers Concerned About Food Safety
Even if you’re not thinking about things that could go wrong, your customers certainly are. The Industry Council on Food Safety conducted a nationwide survey of consumers and editors who cover food issues, and found that people are more aware of food safety now than they have been in the past.
*67% of editors and 52% of consumers think that the issue of food safety is more important today that it was one year ago.
*Of the 32% of the consumers who said they believe less than half of the media stories on food safety issues, more than 75% of them said they would take action in response to negative stories about drinking water, bacteria in food, and food preparation. More than 60% said they would take action in response to negative stories about pesticide residue, food handling, food processing, and mad cow disease.
*9 out of 10 respondents (consumers and editors) specifically listed meat and poultry packers, food processors and manufacturers, supermarkets, and restaurants as being directly responsible for ensuring a safe food supply. 8 in 10 named farmers, producers, and government agencies.
*A high number of editors and consumers believe that producers/farmers and supermarkets are providing a reliably safe food supply. High scores were also received by consumers, food processors and restaurants. The lowest scores in this area were received by meat and poultry packers and government agencies.
*Seven issues that concern consumers the most:
- Safe drinking water—-86%
- Food handing—-85%
- Food preparation—-81%
- Pesticide residue—-74%
- Food processing—-73%
- Fat content—-62%
Source: The Food and Beverage Report.