Food and beverage firms need innovative insurance solutions amid uncertainties

Food and beverage firms need innovative insurance solutions amid uncertainties | Insurance Business Canada

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Food and beverage firms need innovative insurance solutions amid uncertainties

The industry is investing in resilience

The global food and beverage industry seeks greater resilience to business interruption and supply chain volatility in a post-pandemic world.

A new survey has shown that these businesses are most concerned with navigating turbulence amid global conflicts, climate change, and a cost-of-living crisis.

According to WTW’s 2024 global food and beverage risk outlook, nearly half of food and drink companies (48%) viewed business interruption as their biggest internal exposure, followed by the supply chain as their greatest internal (40%) and external (35%) risk factor.

Amid continued uncertainties, they are increasingly looking for more flexible and innovative insurance coverage, a WTW leader said.

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Food and beverage companies are adapting to ‘the new normal’

However, this year’s survey also indicated that businesses have learned from the financial shocks of the past few years. Four in 10 firms (41%) say they aim to increase liquidity, while other notable strategic goals include reducing costs (38%) and stabilizing operations (35%).

Encouragingly, nearly half (47%) of firms said they review their business continuity plans every six months and 31% quarterly.

This shift indicates a recognition that amid a volatile global economy, financial flexibility is emerging as a powerful risk management tool for food and beverage firms. For the insurance industry, clients want similar flexibility in their insurance coverage. “We’re getting a lot of demand for innovation, especially around supply chain,” said Simon Lusher (pictured), global food and beverage leader at WTW.

“Technology plays a key part, with clients investing in digital supply chain management tools and cargo trackers. This tech is now feeding into the insurance industry, allowing us to build solutions based on cargo tracking. There’s still much to do, and we’re investigating how digitalization and supply chain developments can help us create better solutions.”

Food and beverage industry risks not ‘one size fits all’

Besides focusing on risk management, increasing liquidity shows “companies are thinking about war chests, having cash to prepare for the unexpected,” Lusher added.

He reflected on this year’s findings compared to recent past surveys. “In 2022, everyone was emerging from the pandemic, feeling relieved yet facing geopolitical tensions and rising crime. We wondered if people would feel more settled and if priorities had shifted. To some extent, they had, but not as much as we anticipated,” Lusher told Insurance Business.

Climate change also emerged as an area of deep concern, with almost three-quarters (71%) of food and beverage companies in WTW’s survey naming it among the top environmental factors posing the most significant risk to their businesses.

Extreme weather and changes in weather patterns have affected harvests from Latin America and Europe to North America and Asia, forcing many businesses to adjust their supply chain.

To build their long-term resilience, businesses are turning to predictive modelling for long-term investments. These include planning production facilities, storage, and infrastructure placement based on climate suitability and sea level changes. “Our clients are very focused on long-term planning,” said Lusher. He acknowledged that the broad scope of the food, beverage and agriculture sectors makes it challenging for brokers to address their unique risk profiles.

“They encompass diverse businesses from meat processing to crop production. Each responds to challenges in different ways,” he said. “Brokers must understand that complexity and massive pressure on food security.

“Populations are only getting bigger. Environmental challenges and global warming are only putting more stress, so that’s something to remember when developing bespoke insurance solutions for food and beverage clients. It’s not one size fits all.”

Opportunities in the food and beverage space

It’s not all bad news for the global food and beverage industry. Despite the turbulence, the sector is largely bullish on their prospects, with 40% of firms WTW surveyed expecting to be somewhat profitable in two years.

One highlight is the evolution of consumer trends. Two years ago, plant-based meat alternatives were among the top trends in the food and beverage space, prompting the rise of brands like Impossible Burgers and Beyond Meat. However, consumers’ enthusiasm for these products appears to have cooled.

“It seems people are increasingly wary of highly processed foods and these meat alternatives. The focus on vegetarian options has declined, with a shift towards healthier choices rather than meat substitutes,” said Lusher.

Food and beverage companies have been quick to capitalize on emerging trends, such as gut health, probiotics, wellness, and sustainable production techniques. Amid fast-moving consumer demands, brokers must encourage insureds to hone their business focus areas, manage critical risks, and reassess where they might need more protection. “That way, businesses are prepared for almost every outcome, and operations can keep moving forward,” Lusher said.

What are your thoughts on risks in the food and beverage industry? Please share them in the comments.