AIG’s NOVI aims to provide a confidential, objective and accurate reading of the product recall risk by Penny Seach, AIG

The increasing financial impacts and frequency of product recalls are a concern to food and beverage manufacturers, distributors and importers. Expenses resulting from product contamination requiring a recall can be huge, but although affected companies report the volume of recalled products, they rarely disclose the real cost of contamination incidents.

In addition to recall costs, product contaminations can cost food and beverage manufacturers millions in regulatory compliance, lost profit, decontamination, manufacturing delays and brand damage. Ingredient contamination can be particularly costly, and with today’s global supply chains, can affect even those who do not think they are at risk.

The long-term brand damage to a product category, if tarnished, can affect earnings over a longer period. Government agencies monitor product contaminations and can force firms to take corrective action such as product recall, extended product recall or suspend production.

In response to this growing problem, AIG has created NOVI, a unique web-based service providing food and beverage companies with an estimate of their probable maximum recall loss in the event of an accidental contamination. NOVI helps manufacturers make more informed decisions about how to manage their risk once they are aware of the possible cost and financial impact of a contamination incident.

This free, confidential service launched last year in Canada, Europe, the US and the UK. The online service was introduced into the Australian and New Zealand markets recently, and it is also now available offline to organisations based in the Asia-Pacific region. The tool is available to any interested food and beverage manufacturers, regardless of whether or not they are AIG customers.

The NOVI Product Recall Cost Estimator calculates out an estimate for the largest probable loss arising from an accidental product contamination that occurs during production at the plant level, assuming failures of critical control points in the sourcing or manufacturing of the company’s product. The estimate includes the value of contaminated products, recall expenses, destruction costs and lost profit associated with the contaminated products.

The proprietary methodology AIG employs in this unique tool is based on extensive analysis of thousands of recall incidents, insight from more than 25 years of interaction with food and beverage manufacturers worldwide, and input from leading food safety consulting companies.

NOVI aims to provide a confidential, objective and accurate reading of the product recall risk. This will enable companies to better understand potential recall exposure, determine the split between the amount of product recall exposure on the balance sheet versus the risk transferred via insurance, and better manage third-party volumes or contractual indemnity provisions by measuring the recall risk at the supplier or contract manufacturer level.