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Editor’s note: This piece was originally published by Legal Review and is reprinted here with permission.

Underwriting can help farmers manage the risk of microbial contamination in their fields.

Foodborne illness is a public health problem of epidemic proportions. The Centers for Disease Control and Prevention estimates that contaminated food sickens 48 million people each year in the United States, resulting in l28,000 hospitalizations and 3,000 deaths annually. One of the areas of this crisis is more than the upper part of the new product, where the meaning of microbial microbes in the fields and housing packages cause many of the greatest spread in the largest country.

Federal regulations enacted in the past few years have set new and tougher standards for improving food safety on farms. The US Food and Drug Administration is responsible for enforcing these regulations but lacks the inspection tools needed to monitor the more than 120,000 US farms that grow fresh fruit.

Important help in filling the oversight gap may come from a surprising source: the insurance industry.

A recently published study documents the emerging efforts of insurers to monitor and enforce compliance with agricultural food safety standards. These efforts, if successfully promoted, could transform the food safety system in the United States, not only in agriculture but also in the entire food industry.

Risk insurance pools protect policyholders from the dire financial consequences of unexpected damages. One of the drawbacks of insurance is that, by making it easier for policyholders to be financially responsible for accidents, the insurance removes an important incentive for them to exercise, which can increase the risk of accidents. Economists refer to this as the moral hazard problem.

To address this problem, insurance providers often create new incentives for policyholders to reduce risk. Many insurance cases explain how insurers use different techniques to reduce risk. These techniques include premium discounts for policyholders who take precautions and loss control advice on how to avoid accidents that could lead to claims.

In interviews I conducted between 2013 and 2020, 35 insurance professionals — agents, brokers, underwriters, loss control specialists, and adjusters — described how they use these and other techniques to reduce food safety risks on farms. new products.

Farmers typically purchase some form of insurance that includes liability coverage for foodborne disease outbreaks. For small farms, liability coverage is included in the farm insurance package, which includes some combination of coverage for the farm house, personal property, farm machinery and equipment, farm structures, and farm equipment and supplies – as well as Others may include car insurance. Large farms, like other commercial companies, usually have general business insurance, which can be sold separately or as part of a business operator’s policy.

Insurance professionals use a variety of techniques to help farmers reduce the risk of contamination in their operations. For example, insurers use premiums to encourage farmers to pay more attention to food safety issues. One of the authors explained that if insurers see an area where farmers are lagging behind in safety, their underwriters will “reduce premiums” until changes are made, and then “remove them to premiums.” make it attractive.”

In addition to providing price incentives, insurance professionals also provide their insurers with food safety management advice. According to the second author, advising farmers on risk management strategies “helps us not to lose but it also helps them to be the best they can be in their business.”

In the process of compliance, insurance has a significant advantage over the government system. Resource constraints hinder coverage less than they do publicly funded inspections. As a government agency, expanding oversight is placing increasing pressure on limited budgets. In contrast, as the insurance market grows, companies collect more fees to fund inspections. For insurance, increasing demand for inspections provides new revenue to pay for them. Therefore, the power of insurance companies to monitor food safety in agriculture is much greater than that of government agencies.

Insurance also benefits from the most popular privately funded form of fresh produce monitoring – the third private sector of food safety protection provided by farmers. The conflict of interest that arises when farmers pay for audits undermines the integrity of those auditors and undermines trust in them. Although farmers also pay for written inspections, insurance companies have a strong incentive to make sure that the inspectors are strict, because the insurance is responsible for the costs of food safety failures. This business model of insurance companies includes the strong incentive and reliability that is lacking in third-party food safety accounts provided by farmers.

Insurance as a tool to create incentives for farmers to comply with food safety regulations has not yet spread. Providing risk management advice to farmers requires an investment of time on the part of insurance professionals that most cheap agricultural policies cannot support. Therefore, the types of risk reduction strategies described here are primarily associated with larger commercial policies with higher premiums. It does not include insurance for medium and small farms, as the owners of these farms can only afford to buy inexpensive insurance.

Further research may explore ways to organize risk pools for small and medium farmers, or to provide government subsidies to purchase insurance, as is currently done with crop insurance. This approach can support higher premiums and increase insurers’ efforts to help manage food safety risks.

Over time, food safety liability insurance may set a precedent for other sectors of the food industry.

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