Insurance for Food Manufacturers: Cost + Coverage

Why Do Food Manufacturers Need Insurance Coverage?

Food manufacturing businesses face a variety of risks in simple everyday production. An equipment breakdown can halt production. Accidental contamination can lead to customer illness and product recall. An employee risks injury from working with heavy machinery. If you lose power even temporarily, thousands of dollars worth of inventory can spoil. But with the right insurance, you can have coverage for all of these circumstances. 

A product recall is one of the biggest threats that a manufacturing plant faces. According to Tyco Integrated Security, one product recall can cost a business upward of $10 million. According to the article, that cost “Typically include(s) notification (to regulatory bodies, supply chain, consumers), product retrieval (reverse logistics), storage, destruction, unsalable product, and of course, the additional labor costs associated with these activities as well as the investigation of the root cause.” It doesn’t take into account potential lawsuits, lost sales, and the damage to a business’s reputation. The right food manufacturing insurance policy can protect your business if incidents do occur.

What Businesses Need Specialized Manufacturing Insurance?

Anyone in the business of manufacturing food should consider business insurance:

• Commercial bakeries
• Cheese/dairy products
• Coffee, tea, and other drinks
• Candy & confectionery
• Craft breweries/wineries
• Ice cream and frozen desserts
• Meat / poultry / seafood
• Pet food
• Fruits & vegetable canning
• Snack food manufacturers
• Processed foods
• Juice/Beverage processors

What Types of Insurance Do Food and Beverage Manufacturers Need?

There are a few types of insurance policies that we recommend to properly insure your food manufacturing business. 

General Liability Insurance

A food manufacturing insurance package should include general liability insurance. This insurance policy usually covers third party bodily injury, third party property damage, and personal advertising injury. For example, if a potential customer is touring your plant and slips and falls on a recently cleaned floor, general liability can help pay for their trip to the hospital and associated medical expenses. 

Some general liability policies will also include some coverage for product liability. However, a food manufacturing company should consider purchasing additional product liability insurance. Product liability covers completed operations. So if a customer becomes ill or is injured by your product, this policy steps in to cover their medical expenses, replacement costs, and possible settlement.

Product Recall Insurance 

We’ve already demonstrated that product recalls are often costly and can cripple a business. That’s why you need product recall insurance. What is covered under product recall?

• The cost of removing the product from the market
• The cost of disposing of the product
• The cost to replace the contaminated product
• Any lawsuits, legal fees, settlements, etc.
• Communicating with government agencies & the general public

This insurance coverage covers the lost profits and any other financial losses—whether you were negligent or not. It includes accidental contamination, accidental product defects, errors and omissions, spoilage in transit, and flawed marketing. 

Commercial Auto Insurance

Does your manufacturing business use box trucks or other vehicles to deliver product(s)? If you use any vehicle in the course of business you’ll need to get commercial auto insurance. This offers coverage for third party bodily injury, third party property damage, as well as covers the damage to your vehicle and any injury that might occur. You may also need inland marine coverage or cargo insurance to protect your products as they’re being transported or stored off-site. 

Workers Compensation

As a food manufacturer, you likely have numerous employees working for you. In almost every state you’re required to purchase workers’ compensation insurance to protect your employees—and your business. If an employee is injured in a work-related incident, workers’ comp pays for their medical expenses and lost wages while they’re recovering. When an employee is hired, they’re offered workers’ compensation as a benefit and typically waive their rights to sue you if an incident occurs. 

Commercial Property Insurance

Property insurance protects your manufacturing building, heavy machinery and equipment, furniture, and any products being manufactured and stored within the building. A covered incident usually includes storms (wind/hail), fire, and damage from theft or vandalism. Make sure you work with an experienced agent who can help you gauge how much coverage you need. You want to make sure your building is insured at an amount high enough to completely rebuild and replace everything inside. 

Business property coverage can often be bundled with general liability to create a business owners’ policy (BOP). Some BOP’s also include business interruption insurance to cover you in case you are unable to operate your business due to fire, theft, etc. A BOP is a package of coverage plans that is often more affordable than to purchase each type of policy separately.

Equipment Breakdown

If your expensive machinery or equipment breaks down due to an electrical surge or mechanical malfunction, equipment breakdown insurance can pay to repair or replace the damaged equipment. It is especially useful for boilers and furnaces, heating and air conditioning, refrigeration units, and more. 

Umbrella/Excess Liability

If you think you may exhaust the limits of other commercial liability policies, it may be more affordable to purchase umbrella insurance versus upping the limits of your other policy(s). 

You Need the Proper Risk Management in Place

The Food Safety Modernization Act (FSMA) was put into place to work to prevent foodborne illnesses. It consists of 7 rules that all food manufacturers must follow.

1. Preventive Controls for Human Food: Any food manufacturer registered with the FDA must have a written plan that identifies hazards and outlines and includes appropriate preventive controls
2. Preventive Controls for Animal Food: Animal manufacturers that produce animal food (and are registered with the FDA) must outline preventive controls and have a written plan that identifies hazards.
3. Produce Safety: anyone who grows, harvests, packs, and stores produce must follow safety standards. 
4. Foreign Supplier Verification Program: Global suppliers comply with FDA regulations (and it needs to be proven that they do).
5. Third-Party Certification: This allows third parties to administer voluntary consultations and audits to help companies prepare for regulatory audits.
6. Food Defense: Food manufacturers must develop a plan that looks at where a business is vulnerable to contamination and create a strategy for each vulnerability found.
7. Sanitary Transportation: Businesses that transport food (including shippers, receivers, loaders, and carriers) must follow certain rules.

Doing these things can help mitigate the chances of food contamination and prevent unnecessary claims. 

How Much Does Food Manufacturer Insurance Cost?

Insurance companies offer food manufacturing insurance as low as $39–$45 a month for basic general liability coverage. The price of insurance for food manufacturers varies depending on numerous factors, including:

• The size/age of your manufacturing plant
• The location of your business (city/state)
• The number of employees you have
• Whether or not you use vehicles for business
• The deductibles and coverage limits you choose
• The policies you choose for your business

Other factors influence the cost as well, so be prepared to answer some questions when you speak with an insurance agent. 

Get a Free Food Manufacturing Insurance Quote

Our goal at Tivly is to connect small business owners with the right insurance company at a rate you can afford. We know the process of finding business insurance can be daunting, which is why we've tried to make the process easy. You can simply complete the form at the top of the page for free quotes or call us at 877-907-5267. Feel free to reach out and give us a call, even it's just to ask questions and get more information—we are happy to help.

Related Articles: Manufacturing Insurance, Product Liability Insurance, Food Liability Insurance