Best’s News & Research Service - November 15, 2010 04:50 AM (EST)
Chinese Food Imports Cause Liability Concerns in Europe
LONDON //BestWire// - China's development into a major export economy has created concerns in the European Union about the safety standards of the food products it sells abroad, according to broker Aon Corp.
Over the past three years, China has ranked first in security alerts regarding food ingredients that are imported to the EU, said Christof Bentele, global managing director of Aon's product recall team. These alerts, which are known as notifications, are issued by the EU.
China received adverse attention in 2008 after several babies died and thousands became sick from melamine that had been added to milk powder.
The melamine case "is yet another example that highlights the complexities of the modern food supply chain and the importance of effective traceability. It is also a reminder of the importance of robust and effective food safety controls," said U.K.-based crisis management consultancy RQA Europe in a statement at the time.
In 2009 there were nearly 8,000 notifications within the Rapid Alert System for Food and Feed, which is made up of the 27-member EU and such nearby jurisdictions as Norway, Liechtenstein and Switzerland. There were 557 alert notifications of serious risks in 2009, slightly up from 2008. The overall total of just less than 8,000 notifications was a record, and 12% higher than 2008.
John Dalli, the member of the European Commission responsible for health and consumer policy, attributed the overall increase to better cooperation among member states.
"The figures also indicate that member states are sending more follow-up notifications, thereby giving other countries, including third countries, the information they need to act quickly and protect their consumers," Dalli said in a statement.
XL Insurance (Bermuda) Ltd. has recognized an increasing regulatory role for the issue in North America. It has launched a new product contamination policy designed to extend coverage to government-ordered recalls.
"The last few years have seen a significant rise in the frequency of recalls in North America combined with a noticeable increase in the size and scope of the recalls and a corresponding increase in financial severity," Beth Piggott, chief casualty underwriter, said in a statement accompanying XL's announcement.
Aon advises its clients "to be very careful with regards to selecting partners in China and the rest of Asia," Bentele said.
Most at risk are companies in Europe that are using these ingredients in food products that are distributed throughout the rest of the EU. The danger is that such products could be involved in expensive recalls. Bentele, who puts the global product recall insurance market at about $300 million in annual premiums, estimates that more than half of this comes from Europe.
These policies extend beyond third parties to financial damage to the client's business. They cover recall costs and lost revenue.
While levels of quality management are different in Asia than in the European Union or the United States, Bentele said, there have been improvements in hygiene and food safety regulations in China and a demonstration of the Chinese government's commitment to enforcing them. In five years, he expects quality management in China to be at an appropriate level.
The melamine case increased the outside awareness of the presence of Asian ingredients in food, while bringing an effective response from the Chinese government, Bentele said.
Clients that receive food imports from China should audit their suppliers in the region to ensure that they are following standards. "Obviously all of the incoming material has to be extra-tested to make sure that every batch is in good order," he said.
The EU requires the food industry to adhere to the international food safety approach known as the Hazard Analysis and Critical Control Point. The HACCP has been designed to identify and deal with threats to food safety.
Companies that import material from China should seek to establish the kind of long-term relationships that can increase trust and make it easier to follow audit trails, Bentele said.
The use of imports from Asia can make risk management more difficult, Bentele said. Underwriters are likely to ask detailed questions and may seek higher premiums. Some insurers may not even be interested in clients that use ingredients from China, he said.
But the economic pressures on companies to use materials from China can be very strong because their costs are very competitive against those from other parts of the world, Bentele said.
In the past couple of years, Aon has been able to ease the concerns of many insurers on the use of food imports from China, he said. One of the results of this effort has been an increased willingness of insurers to accept this risk.
At the same time, China's sizable food industry has continued to grow, Bentele said. "You will find that many, many products that are being introduced to the European Union or the West actually are fully Chinese products," he said.
Companies should have crisis management and recall plans in place, said Bentele, who has found an excellent performance in this area among his European client base. He also sees an improvement in food safety standards throughout the world.
XL Insurance (Bermuda) Ltd. has a current Best’s Financial Strength Rating of A (Excellent).
To hear the full interview with Christof Bentele, go to http://www.ambest.com/media/media.asp?RC=178207
(By Robert O'Connor, London editor: Robert.OConnor@ambest.com)