Increasingly, more and more food companies are purchasing recall insurance in an effort to help ensure, when recalls are required, the survival of their company and brand. In turn, in the event a recall is needed, and the underlying recall insurance is triggered, the insurance company will work with its insured to determine the amount of losses, complete the necessary accounting, and issue a final Proof of Loss and final payment.

Unfortunately, when a food product recall occurs, this process can take months, and sometimes, depending upon the size and complexity of the recall, even years to complete. The lengthy delay that typically occurs between the announcement of a recall and the eventual and final payment of recall insurance proceeds can be extremely damaging financially to any company. In addition to having to issue refunds and credits, pay customer administrative fees and destruction costs, and manufacture replacement product, the company might also lose orders or customers entirely.

In some cases, when this occurs, and the insurance payments are delayed significantly because of accounting for months or worse, the company at issue may not survive. To prevent this from occurring, it is important to know that some insurance companies may be willing to issue an interim payment. An interim payment is a partial payment made by the insurance company to the policyholder during the claims process, when it is known that the losses will exceed a certain threshold.

For example, if it is clear that the food company’s losses from a large-scale recall of a food product is going to be approximately $5 million (subject to the completion of the forensic accounting by the insurance company), the insurance company may be willing (or may be convinced) to issue an early interim payment of $2.5 million. Such a payment can help cover ongoing recall expenses, ensuring that the company can maintain liquidity and continue operations while the final claim is being processed. This, of course, can be critical for any company facing immediate financial pressures in its efforts to remain afloat.

So, when you are considering renewing, or sourcing new, recall insurance, be sure to ask your broker what the insurance company’s historic policy has been on interim payments. If the answer is that the insurance company will entertain and honor such requests, it will likely be a good policy. If the answer, however, is “no,” then I might shy away from such a company.

In the end, you want your recall insurer to be your partner, and also be willing to throw a lifeline in your time of greatest challenge and need.

The Lifeline of Recall Insurance Interim Payments

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