Maggi effect: F&B firms line up for ‘contamination’ cover

As domestic food safety regulations get stringent on the back of Nestle’s Maggi fiasco, general insurers are seeing increasing enquiries for niche covers such as for contaminated products and product-recall.

Nestle India saw its consolidated net profit drop 60 per cent for the quarter ended September after a food-safety scare prompted a nationwide recall of its instant noodles brand Maggi in June. 

The incident caused a big scare among companies operating in the food and beverages (F&B) sector, too, as many came under the scanner of the regulator FSSAI (Food Safety and Standards Authority of India).

Nestle recently resumed production of Maggi noodles in India after fresh tests found them safe for consumption.

Sushant Sarin, Senior Vice President — Commercial Lines — Tata AIG General Insurance, said that his company is now getting five-six enquiries a week on ‘product contaminated’ insurance; earlier, a whole quarter would average that many queries.

“At times, despite best efforts and quality standards undertaken by companies operating in the F&B and personal-care space, contamination can occur, due to which they can face severe consequences,” he said.

Contaminated product insurance covers, among other things, business interruption and recall costs, rehabilitation expenses, and related consultancy spend.

Bajaj Allianz General Insurance has also seen a jump in queries for ‘product recall’ cover, said Sasikumar Adidamu, Chief Technical Officer.

According to Sanjay Kedia, Country Head and CEO, Marsh India Insurance Brokers, apart from basic cover, most domestic F&B companies are now looking for more comprehensive covers such as contaminated product insurance, as they fear incurring huge costs not just on a product recall but also in the form of penalties, legal expenses, and outflows for protecting the brand image, and crisis management.

Tata AIG’s Sarin said the contamination cover starts at ₹5 crore and goes up to ₹130 crore. The company, he said, has paid out a few large claims, exceeding $1 million to a single company.

Marsh India CEO Kedia said that the premium for such policies depend on various parameters such as turnover of the company, the quality standards adopted, and the type of product. The premium, therefore, can range from 0.5 per cent to 3 per cent of the size of the insurance cover, he added.

Considering the massive claims that insurers can face, these covers are backed by global/domestic re-insurers.

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