This is the second of two articles on the role of insurance companies in ensuring food safety. Read Part 1 here.
Timothy D. Lytton, a professor of law at Georgia State University School of Law and author of Outbreak: Foodborne Illness and the Struggle for Food Safety, has delved into the role of insurers in enforcing safety standards in produce operations.
He believes that insurers play a key role in food safety.
One tactic is to use premiums to enforce safety standards. If an insurer sees a grower falling short on safety in a particular area, underwriters will increase the premium until the problem is addressed and reduce the premium once the problem has been solved.
Another approach is to give advice about food safety practices to customers. One underwriter quoted by Lytton says that these recommendations “helps us to not have losses but also helps them be the best they can be in their business.”
Lytton contends that insurance has several advantages over other enforcers of food safety on produce operations. Audits by private companies are frequently used, but they are often suspect because of the auditors’ conflict of interest: they have some incentive to be lenient with the grower, who is, after all, the one who is paying them. Auditors who gain a reputation for being too strict simply might not be hired by other growers.
By contrast, the insurer is the one who has to pay in the event of a violation, so its interests lie very much in the direction of ensuring safety.
Lytton points out one obstacle to the use of insurance as a means of safety enforcement: for small growers in particular, the premiums are low ($500-1000 per year for the whole operation), so the insurer has little incentive to give individual attention.
“Providing risk management advice to farmers requires an investment of time on the part of insurance professionals that most inexpensive farm policies cannot support,” Lytton observes.
Furthermore, despite the publicity given to produce-associated outbreaks (such as the current case of Wendy’s, which is linked but not confirmed by the CDC), an individual grower is unlikely to have any of them traced to their particular operation.
Citing CDC figures, Lytton says that 48 million Americans suffer from foodborne illness per year, but very few of these cases can be traced back to specific farms. He says that growers are “as likely to be identified as the source of a food-borne illness as to be struck by lightning.”
Lytton believes that one way of making insurance more effective in helping smaller growers to uphold safety is “to organize risk pools among small- and medium-sized insurance, as is currently done with crop insurance.” This might lead to greater profit from premiums and give the insurer more incentive to help manage food safety risks, as insurers currently do with larger (and more profitable) customers.
Food safety in the U.S. is managed by an intricate network including government oversight, civil litigation, private audits, and industry-managed safety initiatives. A more active participation by insurance companies could be a valuable addition.
“In time, food safety liability insurance coverage may yield a model for other sectors of the food industry,” says Lytton.
