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Insurance market update for the food and drink sector

Q2 2020

Risk & Analytics|Corporate Risk Tools and Technology
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June 29, 2020

Willis Towers Watson’s update on markets that matter to the food and drink sector

The insurance market has continued to harden across all sectors for certain classes of business but it is particularly difficult for businesses in the food and drink sector. This insight summarises Willis Towers Watson’s experiences with the current marketplace, specifically insurers’ appetite and capacity, class by class, along with the impact of this on rating levels and premiums.

Tower
Property Damage/Business Interruption
  • Beverage continues to be viewed by insurers as a more attractive risk than food.
  • The food industry has seen a number of high-profile fires recently, including several in 2020, impacting insurer appetite.
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  • Capacity was already difficult following reinsurance renewals in January 2020, but has reduced further since, impacted by the current COVID-19 crisis, which has impacted insurers’ profitability.
  • Lack of capacity has necessitated restructuring in many cases, as some insurers will only provide cover at excess levels. This is generally at higher rating, leading to more substantial premium increases.
  • With the number of insurance markets diminished and capacity generally being reduced by all, insurers are being very selective about which cases they choose to write.
  • It is essential to present as an attractive risk, to capture what little capacity there is, understanding that a premium increase is likely, potentially with an increased deductible level.
  • Early preparation is essential, well ahead of renewal (ideally 6 months prior), focusing on high quality risk and risk management information, information on composite panels, panel management and replacement, an effective business continuity plan and articulation of business interruption dependency per site.
  • The market is continuing to harden and is likely to become increasingly difficult for renewals towards the end of the year.
  • Given the above, it is important to challenge the current programme design, backed by analytical work, to ensure it is on the optimum basis and also to work with a broker who knows how to present the right information in the best way and has the insurer relationships necessary to achieve the best available outcome.
Truck
Motor
  • Remains relatively stable but challenging for heavier HGV fleets. It is possible to get flat rates from holding insurers, but we are seeing many seeking rating increases of 5% to 10% even on good risks, based on Ogden / claims inflation and Motor Insurance Bureau (MIB) levy increases.
  • Claims cleansing and effective risk management are vital in achieving best terms.
  • Markets prefer multi-line deals including property damage and casualty. Some insurers decline to quote stand-alone motor business.
  • Following the UK’s exit from the EU, there is no change of requirements in relation to green cards during the transition period. At this stage it is not clear what the position will be from 1 Jan 2021. We will keep clients advised when the position is confirmed.
Scale
Liability
  • Appetite for food risks in the market is still strong but retention structure and claims performance is key.
  • Primary rates are generally flat for risks with healthy claims performance, but we are seeing increases of at least 10%-20% are being sought by Insurers where claims performance is below expectations.
  • Profitability for insurers is the key objective.
  • Cross-class deals remain available and often achieve the best marketing results as economies of scale are achieved.
  • A number of insurers are reducing excess capacity which can lead to enforced structural changes which could also have an impact on pricing.
  • Allergies are a key underwriting consideration, so risk management information about how customers segment the work place to ensure no cross-contamination may be required, as well as clarity about liability arising from mis-labelling.
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Directors & Officers Liability
  • There has been a further hardening of the market:
    • SME companies are experiencing increases ranging from 25% - 75%
    • Large private companies are experiencing increases ranging from 20% - 100%
    • Small listed companies are experiencing increases ranging from 40% - 150%
    • Large listed companies are experiencing increases ranging from 40% - 300%
  • The higher end of the premium increase range relates to companies who are experiencing financial difficulties, have a poor claims experience, or an ADR (American Depository Receipt) exposure.
  • Deductibles are being applied across all businesses. These only apply to the company, not to individual directors.
  • Increased application of insolvency exclusions since the COVID-19 pandemic began, and certainly against the most affected sectors, where the downturn in, or total lack of trade has severely impacted financial results.
  • Increased underwriting scrutiny of the financial position of the insured (COVID-19 Questions to be answered).
Lock
Cyber
  • Following the rapid growth in previous years of capacity in the cyber market, in 2020 we expect capacity to remain stable in light of the trends noted below with a greater emphasis on best in class risk management control and the quality of submission information to mitigate premium increases.
  • Uncertainty over the Lloyds and PRA requirements for non-affirmative (silent) cyber to be addressed in traditional lines is driving careful coverage expansions. In particular, there is likely to be increased demands for affirmative property damage cover, arising from a cyber peril.
  • We expect the number of claims and losses will continue to rise as the threat landscape evolves, coverage is expanding and being tested, industry operations continue to become increasingly automated increasing the likelihood of business interruption losses and global legislation continues to tighten increasing the costs associate with third party liability due to a privacy or security breach.
  • We expect retentions to be reviewed by insurers to ensure appropriate setting to mitigate the impact of attritional losses.
Crime
  • We are seeing premiums increasing between 25% and 100%.
  • Insurers continue to review the capacity they provide and look for co-insurance.
  • Increased Deductibles as a matter of course.
  • Continued review of the level of social engineering cover provided.
  • Again, increased underwriting including COVID-19 question sets to completed.
Yatch
Marine
  • The marine cargo market experiencing sustained drive by Insurers to impose premium increases – generally up by 7.50% to 15% - even on profitable business.
  • Insurers adopting a firm stance on renewals, reluctant to offer policy period extensions
  • Insurers continue to refine risk appetite with a cautionary approach to temperature-controlled and time sensitive goods
  • Insurers either declining to renew or asking for (and getting) price increases of 20% + on poorly performing business and/or risks on the periphery of underwriting appetite.
  • Insurers require more risk information than ever before even on their existing business.
  • Policy conditions are being scrutinized with cover restrictions and sub-limits in respect of policy extensions with non-damage delay triggers,
  • Insurers regularly seeking increased deductibles and introducing additional subjectivities.
  • COVID-19 has had a dramatic impact on global supply chains which has alerted Insurers to significant exposure to delay and risk aggregations for goods in transit,
  • Insurers seeking to impose far reaching pandemic exclusions or restricted coverage.
Volume
Product Contamination and Recall
  • The market continues to harden, meaning higher rates and more defensive underwriting (lower limits, higher insured retentions and more narrow coverage).
  • Typically, we are seeing rate increases of up to 10% on average placements. There are a range of aspects that impact this assessment, including changing revenues, losses and alterations to products manufactured.
  • There have been no major market entries or exits in 2020 so far. There have been notable changes to trading attitude from some insurers however, with some remediating their books with drastic cuts to the capacity and coverage on offer.
  • We are seeing a variety of claims for mislabelling and foreign body contamination. In general, product recall incidents appear to be rising in line with the trend for the last 10 years.
  • Cyber continues to be a topic of discussion, but with standardised exclusions and write backs accepted across the market. Willis Towers Watson's position is to advocate broader exclusions with write-backs to ensure we cover recalls caused by ‘cyber’ issues, including manufacturing facility hacking, or the use of computer programmes to change product specifications with the intention of causing harm.
  • COVID-19 exclusions are being widely applied to new business and renewals in a standardised form. Generally, these are mandated so there is little we can do to prevent them, but a deviation from the LMA accepted format should be challenged.

If you would like to know more, please contact a member of your Client Service team, or your account manager, or contact our Food & Drink Practice Leader, Sue Newton.

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage.

The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates.

COVID-19 is a rapidly evolving situation and changes are occurring frequently. The information given in this publication is believed to be accurate at the date of publication shown at the top of this document. This information may have subsequently changed or have been superseded, and should not be relied upon to be accurate or suitable after this date.

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Sue Newton
Food & Drink Practice Leader