Insurance buyers in the food and beverage industry are facing their most difficult renewal season in decades. The sector was one of the first to see a hardening market – driven by a series of large fires over the last few years. Now, alongside the general trend towards a hard market – something which we experience day-in-day-out across most of the industries our clients work in – firms in the food and beverage sector are being hit with a range of more specific factors that are causing further reductions in capacity and correspondingly, exponential increases in premium. In some cases, this could leave companies unable to get crucial coverage.
Property insurance is a truly globalised commodity and events on the other side of the world are partly to blame for these difficult market conditions. The recent (and unprecedented) bushfires in Australia are having an impact, and the Australian insurance market is facing significant challenges. As a result, more Australian risks are now being placed in London. At the same time, US property rates are increasing and brokers are looking outside of their home market too. Unsurprisingly, this considerable increase in demand is causing a significant reduction in the available capacity of the London market.
While those two factors alone would make this year’s renewals challenging, we also have to take into account recent changes at MS Amlin, a leader in the food and beverage segment, which has now gone into run-off and will not be accepting new risks. And finally, the extensive use of composite paneling across the food and beverage sector is also making some property risks look especially problematic.
The term ‘perfect storm’ is over-used, but this situation would seem to warrant it.
How should insurance buyers react?
Most buyers will be looking to their brokers to help them navigate this difficult situation, however, they too are in a difficult position. Those with a food and beverage focus will be stretched to breaking point trying to cover an entire book of business facing the same challenges. The same is true of insurers, who have to do the complex work of separating the good risks from the bad.
In order to succeed in this environment, policyholders should start preparing as soon as possible. Crucially, they will have to work to ensure that their specific risk is properly understood, rather than being seen as a commodity. This matters a great deal more in a hard market than a soft one.
They will also need to pro-actively create a competitive environment around their risks and might consider running multiple brokers against each other. Even if those brokers aren’t able to entirely mitigate the problem, they will at least be incentivised to place your risk near the top of their priority list.
Finally, buyers need to understand that the devil is often in the detail. Even if they do manage to find coverage at an acceptable price, they may find the policies are much more tightly worded than they have become used to. Higher deductibles, onerous obligations and carefully drafted exclusions may mean that the coverage is significantly less reliable than the buyer might like, or than her company’s balance sheet can bear.
Click here to find out more about our approach to managing a hard market.