The Food Safety and Modernization Act (S.510) of 2010 is the first major overhaul of the FDA’s food safety provisions since 1938. And after a year that saw recalls of numerous processed foods, meats and eggs (check out the nine major snafus of the decade according to the Huffington Post), an overhaul food safety regulations is exactly what Americans need. To better understand the new act, I contacted Bernie Steves, managing director of Aon Risk Solutions’ crisis management practice, and Rick Shanks, national managing director of Aon Risk Solutions’ food system, agribusiness and beverage practice.
Will there be an expected increase in the number of recalls as a result of the legislation? If so, why?
BS & RS: Aon expects the number of recalls to increase if the proposed legislation becomes law. The FDA will be able to insist on a recall based on “reason to believe” rather than providing credible evidence of the contamination. We are already seeing an influx in recalls. To date, recalls have been on a voluntary basis and increasing for several years.
What are some examples of new regulatory requirements for manufacturers, importers and distributors as outlined in the Food Safety and Modernization Act?
BS & RS: A full hazard analysis will be required, identifying and evaluating known or reasonably foreseeable hazards that may be in association with the facility. These include an extensive list of hazards specifically given as examples in S.510. The hazard analysis must include food defense, which identifies and evaluates hazards that may be intentionally introduced by acts of terrorism. A full plan will need to be developed.
What implications will these new regulations have on recall insurance?
BS & RS: Food companies will need to reevaluate coverage, limits, terms and conditions. Studies show that the average recall costs $10 million, not including damage to brand. Several insurance markets have been able to include government recall as an endorsement to product contamination policies. Certainly those endorsements will be more applicable in the U.S. with the passage of this legislation. It is important to note that while this authority to order recalls is new in the U.S., many countries’ local food safety authorities have had this power. For instance, the EU has had similar legislation since 1999.
What effect will these regulations have on risk managers in the food production and distribution industry?
BS & RS: Underwriters will require more detailed information on processes, controls, loss prevention, crisis management and product development. Aon advises risk managers to be involved with quality assurance, food safety, food defense and supply system risk management in both manufacturing and distribution for wholesale and retail.
Though this bill has enjoyed strong bipartisan support, it is not yet finalized. When can we expect the Food Safety and Modernization Act to be put into action?
BS & RS: Experts advise that the normal process between the House and Senate may delay the passing of the legislation. Some reports say that the House may streamline the process.