From KOO beans to apple juice – product recalls are costly, but there’s special insurance for it

Business Insider SA

Recall South Africa insurance
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  • Millions of products have been removed from South African shelves in recent months because of recalls.
  • Tiger Brands’ recall of canned products, including baked beans and sweetcorn, is estimated to cost around R650 million.
  • More recently, certain apple juice products from Appletiser, LiquiFruit, Ceres, and Woolworths have been recalled due to a patulin problem likely stemming from a single supplier.
  • Coca-Cola alone estimates that 37,000 cases of its Appletiser products are impacted, stretching beyond South Africa.
  • But there are two types of insurance which can protect businesses from recall-related costs.
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South Africa has witnessed two major product recalls this year which are likely to cost affected companies hundreds of millions of rand. There is a special insurance policy which can cover these losses.

Product recalls are costly exercises. Undertaken by companies, either voluntarily or by order of South Africa’s regulatory authority, when goods are determined to be defective and of possible harm to consumers, these recalls have far-reaching consequences.

One of South Africa’s biggest packaged food businesses, Tiger Brands, issued a recall of certain KOO and Hugo’s canned foods in July. It’s estimated that some 20 million individual items were part of the recall stemming from the detection of a packaging defect which raised concerns around consumer safety.

The cost to transport, store, and dispose of the affected cans is expected to cost Tiger Brands around R650 million. This includes the cost of the recalled stock being written off. Reputational damage is harder to quantify.

And it’s not just cans of baked beans, sweetcorn, and curried vegetables which have been removed from retailers’ shelves around the country in recent months. Certain apple juice products sold by Appletiser, LiquiFruit, Ceres, and Woolworthsare also part of a recall first instituted in September.

The National Consumer Commission (NCC) recently confirmed that the affected products could be traced to one supplier, Elgin Fruit Juice (PTY) LTD, which is currently under investigation in terms of the Consumer Protection Act (CPA).

This recall, due to elevated levels of patulin, a mould which, when consumed, can cause nausea, gastrointestinal disturbances, and vomiting, stretches beyond South Africa’s borders. Coca-Cola estimates that 37,000 cases of its Appletiser products are impacted.

The total number of recalled products, when including LiquiFruit, Ceres, and Woolworths, stemming from this patulin problem is expected to be much higher.

“In the case of the apple juice recall, it involves multiple brands and retailers and one supplier. There are many parties involved, including consumers. This increases the stakes given the serious concerns about a mould toxin found in the apple juice concentrate,” said Soul Abraham, head of retail at Old Mutual Insure.

“Some businesses can be forced into bankruptcy when incidents like these happen. If a company is compelled to speedily take the product out of the public reach before it causes harm, but fails to act quickly, it can have a long-lasting effect on all stakeholders in the value chain.”

There are two types of insurance that deal with distinct aspects of product recalls.

Product Recall insurance is a rare, but not completely unheard of, form of protection. It covers disposal costs, warehousing costs, and restocking of the recalled products. Some policies even cover PR and specialist recall consultants who can manage the brand’s reputation.

“If there is cover in the retailer’s name then they would be able to claim costs associated with recalling the product from their shelves,” said Abraham.

More common in South Africa is Public Liability cover. This protects the business against claims lodged by customers, suppliers, or members of the public if they suffer injury or damages because of negligent business activities.

This can apply to “slips and trips” when, for example, a shopper claims that they fell and suffered injury because of a supermarket’s negligence. Although it doesn’t cover the cost of recalls like Product Recall insurance, it does cover damage to third-party property or injury to third parties.

“If we are talking about a product recall, then both the manufacturer and retailer would be involved. It is advisable that both the manufacturer and the retailer should at least carry Products Liability cover,” said Abraham.

“While not compulsory in South Africa, it is obviously good business practice to have Public Liability including Products Liability insurance where applicable covering all your risk exposures if you are a business owner with a warehouse, mall, restaurant or shop, manufacturing plant, or if you are providing a professional service.”

(Compiled by Luke Daniel)

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