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Perspective

Liability Insurance - Lessons from the Maggi Recall in India

July 27, 2015| By Ayush Jain | General Liability | English

Region: Asia Pacific

Maggi brand instant noodles have recently landed Nestle in hot waters in India. In late April, the Uttar Pradesh Food Safety & Drug Administration found excessive levels of lead and presence of added MSG (Monosodium Glutamate) in a sample batch of Maggi noodles. As a result, in June the Food Safety and Standards Authority of India, together with various state governments, banned the sales of Maggi in the country. Nestle subsequently recalled all Maggi noodles in India.

Despite challenging the findings and the bans in the High Court, Nestle withdrew and destroyed 30,000 tonnes of noodles, taking a 3.2 billion Rupees (USD 45 million) hit to its bottom line. The reputational damage to the company through social media channels and the absence of the product on shelves across the country may be just as costly. 

Following this incident, the number of inquiries increased concerning product recalls by the food industry, whereas demand had been very limited in the past. The scenario presented below demonstrates how selecting the right policy is important for every enterprise:

  • With a recall policy, Nestle India would have been covered for the cost associated with recalling, shipping, destroying the product, brand value loss, etc.
  • Any third-party injury resulting from the consumption of Maggi noodles could have triggered a product liability policy for Nestle. It would have possibly paid for legal expenses as well.
  • Maggi accounts for about 25% of Nestle’s business in India and has a 70% market share in the instant noodle category. Since the controversy erupted, Nestle India’s share price took a hit. Are there additional exposures under its Directors & Officers policy?


In the above case, absence of one (product recall) and presence of another (product liability) may not save the company from the cost of liabilities arising out of its business operations.

As India enters a new phase of economic and social growth, it will be an exciting and challenging time for insurers. Insureds will be facing new exposures, as this Maggi example illustrates, and looking to their insurers for advice.

As a direct reinsurer, we face many of the same issues as our insurance company clients. If you would like to speak to a Gen Re underwriter about the challenges and opportunities in the Indian market, give us a call.

 

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