Farmers can manage the danger of microbial contamination in their fields with the aid of insurance underwriters. Insurance as a Tool for Food Safety Regulation
Foodborne illness is a public health problem of pandemic proportions. The CDC estimates that contaminated food sickens 48 million Americans each year, causing l28,000 hospitalizations and 3,000 deaths annually. Nowhere is this crisis more acute than in the fresh produce sector, where virulent microbial pathogens in growing fields and packing houses cause many of the nation’s largest and deadliest outbreaks.
Federal regulations developed in the past few years have established stringent new standards for improving food safety on farms. The U.S. Food and Drug Administration is responsible for implementing these regulations but lacks the inspection resources needed to oversee the more than 120,000 U.S. farms that cultivate fresh produce.
Insurance as a Tool for Food Safety Regulation
Significant help in filling this oversight gap could come from a surprising source: the insurance industry.
A recently published study of mine documents the emerging efforts of insurers to monitor and enforce compliance with food safety standards on farms. These efforts, if successfully scaled up, could transform the U.S. food safety system, not just on farms but also across the food industry.
Insurance pools risk to shield policyholders from the potentially ruinous financial consequences of unexpected harms. One downside of insurance is that, by relieving policyholders of financial responsibility for accidents, insurance eliminates an important incentive for them to exercise care, which could increase the risk of accidents. Economists refer to this as the problem of moral hazard.
To address this problem, insurance providers frequently create new incentives for policyholders to reduce risk. Numerous case studies of insurance have described how insurers employ a variety of techniques to reduce risk. These techniques include premium discounts for policyholders who adopt precautions and loss control advice about how to avoid accidents that might give rise to claims.
In interviews 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 the risk of food safety failures on farms that grow fresh produce.
The organization of risk pools among small- and medium-sized growers or the provision of government subsidies for insurance purchases, similar to what is now done with crop insurance, may be the subject of future research. This strategy may encourage insurers to offer more coverage and raise prices in an effort to reduce the risks associated with managing food safety.