Liability insurance should be mandated in the food and beverage industry to strengthen companies' risk management in the sector, a political adviser has said.

"An increasing number of food safety disputes have emerged with the public's enhanced awareness about food safety," said Feng Xingyun, a member of the National Committee of the Chinese People's Political Consultative Conference.

"The ongoing Sanlu milk scandal has once again drawn attention from home and abroad about the food safety issue," Feng said in a signed article carried by People's Daily on Thursday.

The melamine-tainted baby formula produced by Sanlu Group has killed four infants and left about 53,000 children suffering from urinary problems including kidney stones.

The company has recalled more than 10,000 tons of milk powder, involving more than 700 million yuan (US$103 million) in refunds. It will also have to bear the medical expenses for those affected.

Sanlu may go bankrupt and be taken over by Beiijng Sanyuan Food Co, which remains untainted in the scandal, according to media reports on Friday.

"As most food and beverage enterprises are vulnerable to risks owing to their small scales and lack of insurance coverage, they often have limited compensation capabilities in the case of a food safety accident," Feng said.

Therefore, she suggested the Ministry of Health and the China Insurance Regulatory Commission mandate liability insurance in the food and beverage sector in selected pilot areas, by introducing commercial insurance to their food and hygiene management system.

Then the insurance service should be gradually expanded to food and beverage enterprises nationwide, based on experience drawn from the trial period, she said.

The insurance would lower the enterprises' operating risks and enhance their ability in responding with compensation following food poisoning or consumer casualties, she said.

The compensation made by insurers would also alleviate pressure on the government arising from potential bailouts, she added.

An insurance analyst agreed with her. "There're many measures to limit compensation liability due to damages from product deficiencies," the unnamed analyst told Shanghai Securities News. "Apart from improvements on techniques and management, buying products liability insurance is another easy way for effective risk management. However, consumers as well as producers and sellers still lack knowledge about the products' liability insurance or food contamination insurance."

In the 1980s, premiums from product insurance services took up 45 to 50 percent of the revenues of all non-life insurance services in the United States, while in Japan liability insurance services accounted for 25 to 30 percent, according to China Youth Daily.

By contrast, the coverage rate for liability insurance among Chinese enterprises is only 4 percent, much lower than the world average of 15 percent, even though the first product liability insurance service was launched in China in 1984.

China should catch up with the world trend in constructing a nationwide product liability insurance network, which should also include medicine, home appliances and cars, said the China Youth Daily report.

(China Daily September 28, 2008)